Is the new QE really coming? The Federal Reserve intends to buy another $540 billion in Treasury bonds.

category:Finance
 Is the new QE really coming? The Federal Reserve intends to buy another $540 billion in Treasury bonds.


Fire and Water: Buying US Treasury Bills of 60 billion US Dollars a Month

On Friday night, the Federal Reserve said in a statement that it would buy $60 billion of Treasury bills a month from October 15 to strengthen its control over the benchmark interest rate as a tool of monetary policy guidance, at least until the second quarter of next year. In its statement, the Federal Reserve emphasized that these actions are purely technical means to support the effective implementation of interest rate policy and did not represent a change in monetary position. Buying short-term Treasury bills will have little impact on long-term interest rates and broader financial conditions.

The Federal Reserve also said it would implement routine overnight repurchase operations, with two 14-day repurchase operations per week, which would last at least until January 2020 to ensure adequate reserves even during peak demand periods.

Is the new QE really coming?

Considering the Feds interest rate cuts and growing concerns about the U.S. recession, the Feds monthly bond purchases are easily reminiscent of the so-called quantitative easing of Treasury bond purchases. It is widely believed that the Feds move represents the fourth round of quantitative easing.

As we all know, after the outbreak of the financial crisis in 2008, the Federal Reserve implemented three rounds of quantitative easing in order to keep the cost of borrowing at a very low level, resulting in the balance sheet of the central bank reaching $4.5 trillion. Subsequently, the Federal Reserve began to shrink its balance sheet.

The Federal Reserve explained that announcing the purchase of short-term Treasury bonds would maintain the adequate reserves of the banking system above or above the level in early September. Assuming that such operations are not implemented, the level of reserves will decline significantly in the coming months due to the rapid growth of non-reserve liabilities and the increase in future cash demand. From the balance sheet point of view, the purchase of short-term treasury bonds and reverse repurchase are the main means to increase adequate reserves, so they are called expansion of the balance sheet. According to the Feds research, the level of adequate reserve is about $1 to $1.2 trillion, and the actual threshold is difficult to grasp.

What would it mean for asset prices if the Fed restarted QE?

PeterSchiff, a senior Wall Street forecaster, said on Thursday that the Fed has quietly launched a new round of banknote printing, which will also increase the debt bubble of the Federal Reserve while supporting the global market. At the same time, Schiff also believes that gold prices are still undervalued. Since September, the Federal Reserve has begun to provide liquidity to the rediscount market. Schiff points out that when QE3 was previously operated, the Federal Reserve had purchased $85 billion a month; in the past three weeks, it had purchased $176 billion, although the Federal Reserve did not acknowledge that they were in QE. Schiff argues that gold is undervalued because people were too confident about the central bank and the French currency.

Market interest rate cut expectations remain unchanged

The market is not surprised. Earlier this week, Federal Reserve Chairman Powell said in response to money market financing that the Fed would announce an expansion of its balance sheet in view of recent liquidity constraints in short-term interest rate markets, but this is not quantitative easing and will not have a substantial impact on monetary policy.

Currently, the market still expects that the Fed may decide to cut interest rates again at its regular monetary policy meeting in October. According to CMEs Fed Observation: the probability of the Fed cutting interest rates by 25 basis points in October to 1.50%-1.75% is 75.4%, the probability of maintaining current interest rates is 24.6%; the probability of reducing interest rates by 25 basis points to 1.50%-1.75% in December is 58.9%, the probability of reducing interest rates by 50 basis points is 24.5%, and the probability of maintaining current interest rates is 16.6%.

Jin Xiao, head of commodity research at the Institute of Futures Derivatives of the East Securities Exchange, said that precious metals would be the most promising asset in the next one to two years. Judging from the current situation and future of the global economy as a whole, it has actually opened a recessionary interest rate cut, that is, the beginning of the cycle of interest rate reduction by the Federal Reserve, which will further boost the prices of precious metals. Jin Xiao expects the target price to reach $1650 per ounce in the golden year and $2000 per ounce next year. Because silver is more resilient, its price may rise more than gold. In addition to bullish market participants, central banks are also stepping up the pace of hoarding gold. On October 10, the World Gold Association released the latest data showing that the global central banks purchased 62.1 tons of gold (1 ton or more) in August, while the total amount of gold sold was only 4.8 tons, bringing the net purchasing amount to 57.3 tons, which was significantly higher than the conservative 12.8 tons in July. The associations market analysis team believes that global uncertainty is high and there is little sign of a near-term decline, as central banks continue to increase their holdings of gold in their reserve portfolios. Source: Futures Daily Responsible Editor: Yang Bin_NF4368

Jin Xiao, head of commodity research at the Institute of Futures Derivatives of the East Securities Exchange, said that precious metals would be the most promising asset in the next one to two years. Judging from the current situation and future of the global economy as a whole, it has actually opened a recessionary interest rate cut, that is, the beginning of the cycle of interest rate reduction by the Federal Reserve, which will further boost the prices of precious metals. Jin Xiao expects the target price to reach $1650 per ounce in the golden year and $2000 per ounce next year. Because silver is more resilient, its price may rise more than gold.

In addition to bullish market participants, central banks are also stepping up the pace of hoarding gold.

On October 10, the World Gold Association released the latest data showing that the global central banks purchased 62.1 tons of gold (1 ton or more) in August, while the total amount of gold sold was only 4.8 tons, bringing the net purchasing amount to 57.3 tons, which was significantly higher than the conservative 12.8 tons in July. The associations market analysis team believes that global uncertainty is high and there is little sign of a near-term decline, as central banks continue to increase their holdings of gold in their reserve portfolios.