Mid this week FOMC chair Jerome Powell in front of a legislative public speaking event, for the first time mentioned that the FOMC could not decrease oil prices and food prices via faster interest rate hikes.
OK, we may take issue with this slightly because if they beat demand down enough, it will most certainly put headwinds to higher prices of both of these assets. However more importantly, this was possibly the first sign of a less aggressive FOMC, again shared by Jerome Powell.
Instantaneously capital markets took notice of the comments with a much happier tone as did interest rates with an extremely happier tone as well…
Interestingly, and speaking out loud to everyone our thoughts, just two weeks ago, a much harsher tone was voiced by Powell …given that fact, it’s way too soon to say the FOMC has taken their foot off the brake a little bit ….. Heck we still have a lot of economic data to get through for the next few quarters… some of which may be very hot and could have the federal reserve reverse course once again… but maybe it is a start..
We will be watching, but wanted to let you know a possible interesting breadcrumb that occurred this week.
Hot Hot Hot
With an unusually, extremely, hot summer shaping up here in the south, breaking hundred degree days by the week, we wave goodbye to the longest day of the year with less sorrow this year and a bit of trepidation on what August … the seasonally hottest month of the year may bring.
Still better than ice and snow that no one here, present party included, knows how to drive on!
Today is a Friday, getting near Fourth of July midpoint of the year, enjoy your day and your weekend, and if you’re near us, stay hydrated and be careful out there!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Fed Week, Tough Decisions … New “Happy Bank” Back Stop Facility – The BTFP – Bank Term Funding Loan Program … Bank Headlines Continue – Reminder Thought On Late Cycle Headlines …
A while back we mentioned the FOMC – Federal Open Market Committee, lead by Jerome Powell were in a Pickle .. as at that time one of their regional banks had a research report out that GDP- Gross Domestic Production -Economic Growth indicator – was dropping fast and they were going to raise interest rates against a hot CPI = Consumer Price Index – blunt inflation gauge which would exacerbate the situation.
Fast forward to today and that Pickle is not any better…. maybe even more dill! With the afore mentioned Part 1 Advance Analysis M2 review showing dramatically dropping or the pulling of liquidity out of the system, bank fatigue has been seen and felt and here our comments on Banks being a slave to confidence for solvency.
On Wednesday of this week, March 22. 2023 the FOMC is bound by their goal of slowing that sticky inflation we are all seeing, especially at the grocery store, and best measured by the CPI … BUT, this additional rate increase will add fuel to the fire of less liquidity, AND on top of that our neighbors across the pond just raised rates .50% last week, albeit from a much lower 3.00 to 3.50% rate….currently the US rate is 4.75% …
We did say Pickle ? Right….
Enter the BTFP – Bank Term Funding Loan Program – Happy Bank Program
On March 12, 2023 the Federal Reserve Created the BTFP as another backstop for possible Bank Fatigue ..
March 12, 2023
Federal Reserve Board announces it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors
For release at 6:15 p.m. EDT
This new program is a sort of Fed Discount Window on Steroids, meant to improve Bank confidence.
Long ago the FED (going back in loose form to the 1920’s – the start of the Fed) started a program for Bank help during stressful times, the Fed Discount Window –
Fed Discount Window –
BTFP – Bank Term Funding Loan Program
All of the above but the following additions:
The last bullet is the most important and lending a helpful hand from the Fed’s fastest in history rate increase…. as mentioned repeatedly, increase of rates are a headwind to Fixed income aka Bonds, especially longer term bonds….
Some Banks may be seeing a need for immediate liquidity due to loss of confidence and liquidity drain, so this new program essentially gives them liquidity to meet those demands if needed and may have negative assets due to the fast fast rate increases!
While this is being written – Sunday late morning in between Newsletter Articles, UBS a Swiss neighbor of Credit Suisse has made a much telegraphed offer to buy their friend out… no idea what the market will make of this starting tonight as overseas markets open…. but something just crossed the mind that we have mentioned many times before…. and may be applicable….
“Headlines are always the worst near the end of the Cycle!”
Have a Great “Heads Up for a Busy Week” Day!
John A. Kvale CFA, CFP
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Posted in Debt - Debt Management, Economy, FOMC, Interest Rates, Investing/Financial Planning, Market Comments, Retirement Planning
Tagged Bank Term Funding Loan Program, BTFP, FOMC, Interest Rates, Jerome Powell, Pickle