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20 01, 2023

DAILY012023

2023-01-20T16:43:26-05:00January 20th, 2023|2- Daily Briefing|

Waller Throws Fuel on IOR-Recapture Fire

The American Banker today reports that FRB Gov. Christopher Waller answered a question by saying that the Fed does not need the $2 trillion or so housed in the ONRRP to conduct monetary policy. Mr. Waller also said the Fed does not need the level it now holds of central-bank deposits from banks, noting that QT should continue with very significant reductions even though the precise amount of reserves needed to ensure market liquidity is unknown.

Daily012023.pdf

11 01, 2023

FedFin on: An Implacable Problem With a Policy Solution

2023-01-11T16:47:56-05:00January 11th, 2023|The Vault|

As the Fed has hiked interest rates, mortgage rates have of course also gone up, sending a sudden chill through the residential market and putting home ownership even more out of reach for all but those for whom the home equity they still have after prices correct suffices for long-term wealth accumulation.  However, mortgage rates have often risen higher than expected from usual yield spreads and thus Fed tightening is even more excruciating not just for the mortgage market, but also for FHFA’s equitable-finance mission and the Fed’s hoped-for soft landing…

The full report is available to subscription clients. To find out how you can sign up for the service, click here.

 …

11 01, 2023

GSE-011123

2023-01-11T13:13:55-05:00January 11th, 2023|4- GSE Activity Report|

An Implacable Problem with a Policy Solution

As the Fed has hiked interest rates, mortgage rates have of course also gone up, sending a sudden chill through the residential market and putting home ownership even more out of reach for all but those for whom the home equity they still have after prices correct suffices for long-term wealth accumulation.  However, mortgage rates have often risen higher than expected from usual yield spreads and thus Fed tightening is even more excruciating not just for the mortgage market, but also for FHFA’s equitable-finance mission and the Fed’s hoped-for soft landing.  In this analysis, we assess the dynamics of recent mortgage pricing and what might be done about it.

GSE-011123.pdf

7 09, 2022

FedFin: The Big Squeeze

2022-12-20T14:27:31-05:00September 7th, 2022|The Vault|

Reinforcing the sharp turn-around in housing markets evident since the Fed surprised markets with its first 75 bps hike, a new working paper from the San Francisco Fed provides the first hard evidence of how monetary-policy shocks in the U.S. hit listing prices hard and fast….

The full report is available to subscription clients. To find out how you can sign up for the service, click here.…

7 09, 2022

GSE-090722

2022-12-20T14:26:18-05:00September 7th, 2022|4- GSE Activity Report|

The Big Squeeze

Reinforcing the sharp turn-around in housing markets evident since the Fed surprised markets with its first 75 bps hike, a new working paper from the San Francisco Fed provides the first hard evidence of how monetary-policy shocks in the U.S. hit listing prices hard and fast.  The study’s approach is data-based, but theoretical; today’s markets suggests it’s also prescient.

GSE-090722.pdf

23 06, 2022

GSE-062322

2023-01-25T15:52:27-05:00June 23rd, 2022|4- GSE Activity Report|

No Oops re UMBS

Following a sharp critique of GSE capital standards earlier today from the Urban Institute, FHFA Director Thompson today acknowledged Fannie and Freddie’s new 50 bps fees when one of the GSEs guarantees the other’s collateral for UMBS purposes.  The Urban Institute paper argued that these fees properly reflect the capital cost of the rules’ weightings related to these cross-guarantees, going on to say that the fees are likely over time to reduce investor appetite for Freddie Mac securities and thus undermine the UMBS construct and its broader benefits.

GSE-062322.pdf

16 05, 2022

m051622

2023-02-21T15:11:37-05:00May 16th, 2022|6- Client Memo|

When the Fed Goes from Whatever-It-Takes to Anything-We-Can-Think-Of

On Thursday, the Washington Post included an article on all the ways in which inflation hurts middle-income families, the acute shortage of baby formula, and the cooking-oil shortage’s cost impact in places ranging from a D.C. shop selling doughnuts to sub-Saharan Africa.  Other articles chronicled stablecoins’ instability even as stock markets wobbled precariously above going so deeply into correction that investors are not just chastened, but also cudgeled.  The same day, Chairman Powell won his second term by a wide margin even as he told Marketplace that he couldn’t promise a soft landing, didn’t mean to commit the FOMC to only fifty basis-point hikes, and knows how hard inflation hits for most households while being unsure that the Fed can do much about it.  What markets make of this muddle remains to be seen by those not too faint of heart to look.  What I know it means is that a White House under acute political pressure will ultimately do its best to transfer blame from 1600 Pennsylvania Avenue to 20th and Constitution at considerable cost to coherent policy.

m051622.pdf

16 05, 2022

Karen Petrou: When the Fed Goes from Whatever-It-Takes to Anything-We-Can-Think-Of

2023-02-21T15:11:51-05:00May 16th, 2022|The Vault|

On Thursday, the Washington Post included an article on all the ways in which inflation hurts middle-income families, the acute shortage of baby formula, and the cooking-oil shortage’s cost impact in places ranging from a D.C. shop selling doughnuts to sub-Saharan Africa.  Other articles chronicled stablecoins’ instability even as stock markets wobbled precariously above going so deeply into correction that investors are not just chastened, but also cudgeled.  The same day, Chairman Powell won his second term by a wide margin even as he told Marketplace that he couldn’t promise a soft landing, didn’t mean to commit the FOMC to only fifty basis-point hikes, and knows how hard inflation hits for most households while being unsure that the Fed can do much about it.  What markets make of this muddle remains to be seen by those not too faint of heart to look.  What I know it means is that a White House under acute political pressure will ultimately do its best to transfer blame from 1600 Pennsylvania Avenue to 20th and Constitution at considerable cost to coherent policy.

One might discount my prediction of a political reckoning for the Fed by pointing to President Biden’s stout defense of his central bank last week when he tried to show the nation how much he was doing to quell inflation.  But a careful read of Mr. Biden’s statements shows a focus more on the Fed’s independence than on its skill.  So far, Secretary Yellen has persuaded White House …

28 03, 2022

Karen Petrou: Why the Fed Might Bail Out the Commodity Market

2023-03-27T15:57:01-04:00March 28th, 2022|The Vault|

In the midst of chaos, volatility always makes matters worse and this is very much the case with the commodities sector.  This has led to growing speculation that central banks will step in should unprecedented price swings show signs of systemic impact.  As we noted, we don’t know a central banker that wants to bail out commodities.  But none of them wanted to bail out anyone else either.  If market stress turns systemic, then central banks will step in.  Indeed, they may intervene even if stress seems manageable if they also believe that public welfare is at risk when core commodities go from pricey to prohibitive.

In the U.S., the Fed will resist calls to backstop commodities companies or traders for as long as it can by citing what it believes to be its limited mandate even as it argues that its anti-inflation policies will stabilize markets – just you wait.  However, whatever the Fed is able to do about inflation will take time and whatever it does about its portfolio to address inflation will exacerbate commodity-market stress.

Three possible sources of extreme volatility are already on the horizon.

First, there’s the liquidity stress sparked by CCP margin demands.  This was the culprit in the letter from energy traders to the European Central Bank and it’s at least as much of a factor in the U.S.  The more commodity-market volatility, the higher clearinghouse initial and variation margin demands and the harder it is to post eligible assets already scarce …

28 03, 2022

M032822

2023-03-27T15:56:55-04:00March 28th, 2022|6- Client Memo|

Why the Fed Might Bail Out the Commodity Market

In the midst of chaos, volatility always makes matters worse and this is very much the case with the commodities sector. This has led to growing speculation that central banks will step in should unprecedented price swings show signs of systemic impact. As we noted , we don’t know a central banker that wants to bail out commodities. But none of them wanted to bail out anyone else either.

m032822.pdf

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