What to watch for
Ed Bradford notes that the Fed could offer more-concrete guidance on the pace of Treasury buying.
The only guidance from the Fed so far was Powell saying in May that the balance sheet “couldn’t go to infinity.”
A more-formal move hasn’t been widely hinted at or guided by Fed officials and it hasn’t been a particularly large talking point. But it’s critical.
The Fed rolled out QE in March “in order to support the smooth functioning of the Treasury market.” It’s functioning just fine now so it’s time to move the goalposts and recast the program as some kind of economic benefit.
The current pace of buying is $4 trillion per day, which is about $85B/month. That’s been slowly tapered from an insane $300B per day in the week of March 24-27.
Even the current pace is still double the $40B/day from QE3.
It’s tough to say what the market would be happy with but below the $85B current pace would be fine if the timeline was long enough, or tied to guidance like “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”
The current statement also offers this guideline:
“To support the flow of credit to households and businesses, the Federal Reserve will continue to purchase Treasury securities and agency residential and commercial mortgage-backed securities in the amounts needed to support smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions.”