Englund

   Men nivåerna är trots uppgången 1-1,5 procentenheter lägre än dem som gällde hösten 2023. Viktor Munkhammar DI 14 januari 2025   https://www.di.se/nyheter/global-turbulens-gor-bolanen-dyrare/ RE: Det är således inte dagens räntor som är höga utan de tidigare räntorna som var absurt låga Hur riksbanken får räntan att bli som riksbanken vill. Det räcker inte med att beslutet fattas. Sedan börjar det mer eller mindre roliga. Riksbankschefen tittar in i handlarrummet och säger att nu skall räntan ner med 0.25 procent. Jaha, säger handlarna och börjar köpa papper av olika slag, däribland bostadsobligationer. Riksbanken köper; då stiger priset på obligationerna och den effektiva räntan sjunker. Nackdelen är att då får marknaden pengar och riksbanken liksom deras kollegor världen över blir sittande med en tjock, tjock bunt av värdepapper. Dessa sjunker i pris när räntorna senare stiger, vilket ledde till att riksbankens egna kapital förbrukades och förbyttes i underskott...

Martin Schlegel, the head of the Swiss National Bank, discussed that possibility after the bank brought interest rates down by a half point to 0.5% The Swiss central bank as well as the European Central Bank, the Bank of Japan, Sweden’s Riksbank and Denmark’s Nationalbank all employed negative interest rates after the 2008 financial crisis. The U.S. Federal Reserve among others always held rates above zero, using quantitative easing to loosen policy. “Nobody likes negative interest rates. Also, the Swiss National Bank does not like negative interest rates,” says Schlegel.  “Nevertheless, at current juncture we cannot exclude negative interest rates in the future.” Steve Goldstein MarketWatch 12 December 2024 https://www.marketwatch.com/story/are-negative-interest-rates-about-to-make-a-comeback-one-banker-says-its-possible-135bc99c Tillbaka till Rolfs länktips 12 december 2024 https://englundmacro.blogspot.com/2024/12/rolfs-lanktips-12-december-2024.html

  During the Covid crisis, after slashing interest rates near zero — or even below — many of them turned to large-scale asset purchases as a second powerful tool to help their economies. That left them with giant bond portfolios, which they are now allowing to shrink. The thing is, the one time that any big central bank has engaged in what’s known as quantitative tightening — the Fed in 2017-19 — it didn’t end well. Powell acknowledged that US central bankers were blindsided when problems erupted in a vital money market that financial institutions rely on for short-term cash. Jerome Jean Haegeli, a former Swiss central bank and IMF official, says that “global QT, should it continue well into 2025, is more likely than not to continue to trigger volatility spikes.” Chris Anstey Bloomberg 22 augusti 2024   https://www.bloomberg.com/news/newsletters/2024-08-22/global-economy-latest-updates-from-jackson-hole Mattias Svensson: Räntesänkningar får inte fart på tillväxt och produ...

The Pandemic Emergency Purchase Program was introduced in March 2020, eventually accumulating $1.78 trillion of euro zone government bonds At the June 6 ECB quarterly review, the Governing Council confirmed PEPP reinvestments would be reduced by €7.5 billion a month starting in July  Judicious application of the PEPP program could prevent having to reach for a bigger bazooka in the future, such as the Transmission Protection Instrument introduced in 2022 as a mechanism for calming unwelcome bond-market moves, but which demands nigh-on impossible conditions before it can be implemented. Realistically, engaging TPI to help France through a politically driven bond-market crisis would fundamentally split the Governing Council in the absence of any existential threat to the euro project.  Frugal countries, such as Germany, would object vigorously. The ECB should seriously reconsider scaling back PEPP redemptions, which offer its best defense against a bond-market blowout ruining th...

  Stilla öppning väntas på Wall Street https://www.di.se/live/stilla-oppning-vantas-pa-wall-street-1/ Stockholmsbörsen surnar till – storbanker förlorare (di.se) ECB i dag den 11 april  https://englundmacro.blogspot.com/2024/04/vad-gor-ecb-i-dag-den-11-april-2024.html Pressade svenska hushåll kan se fram emot en räntesänkning redan i maj, bedömer chefsekonomen Jens Magnusson vid SEB. DN/TT 11april 2024 https://www.dn.se/ekonomi/ekonom-rantebeskedet-fran-ecb-positiv-signal-for-riksbanken/ QT - Fed Prepares Slower Pace of Runoff for $7.4 Trillion Portfolio ‘Fairly Soon’ Officials have been allowing $60 billion in Treasurys to mature every month, but could lower that amount Nick Timiraos Bloomberg 10 April 2024 https://www.wsj.com/economy/central-banking/federal-reserve-minutes-interest-rate-cuts-4f17489f Stora skillnader i fastighetsbolagens värderingar Det visar en sammanställning tidningen Fastighetsnytt gjort över värdeförändringarna på den svenska fastighetsmarknaden. ”...

The US Federal Reserve faces a monetary-policy challenge above and beyond determining the right level of short-term interest rates: how much and how quickly to reduce the more than $7 trillion in securities still on its balance sheet — holdings it amassed in previous years to help stimulate growth. Back in September 2019, such quantitative tightening didn’t end well.  Since April 2022, the Fed has been in tightening mode, with its holdings of Treasuries and mortgage-backed securities currently running off at a rate of about $75 billion to $80 billion a month. Officials are already discussing when to slow the pace of quantitative tightening. The greatest danger is that markets will incorrectly interpret a decision to slow the runoff rate as a harbinger of rate cuts.  Bill Dudley Blooomberg 17 januari 2024 https://www.bloomberg.com/opinion/articles/2024-01-17/have-no-fear-of-the-federal-reserve-s-7-trillion-stash Now Worry About the Fed Unwinding Its Balance Sheet Bloomberg 5 Ja...

The last time the Fed attempted to slowly halt the process of unwinding its balance sheet — a process known as quantitative tightening, or QT, its efforts lasted only months before ructions in 2019 in the funding markets prompted a re-think. During that episode, there was already evidence that bank reserves — a bellwether for how it conducts policy — were scarce.  For over 18 months, the Fed has been letting as much as $60 billion in Treasuries and as much as $35 billion in agency debt holdings mature every month. Bloomberg 5 January 2024 https://www.bloomberg.com/news/articles/2024-01-05/forget-rates-now-worry-about-the-fed-unwinding-its-balance-sheet Treasury traders are standing firm behind wagers that the Federal Reserve will cut interest rates sharply in 2024 even as a bunch of employment and service-industry data whipsawed yields Friday. Swap contracts tied to Fed meeting dates are again pricing in almost six quarter-point cuts and see a more than 70% chance of a quarter-poin...

 ... pulling money out of the financial system, even if the fight against inflation looks to be won and interest rate cuts begin. Their aim is to restore the role of markets in supplying and setting the price of money. It’ll be a bumpy ride. The Federal Reserve and others will be testing a great uncertainty: Just how much in central bank funds do banks need to feel comfortable?  The last time the Fed got near this threshold in September 2019, short-term interest rates in money markets went haywire, spiking higher and leaving some hedge funds scrambling for cash. Bloomberg 5 December 2023 https://www.bloomberg.com/opinion/articles/2023-12-05/we-ll-soon-see-if-new-fed-defenses-work-against-money-mayhem Fed balance sheet shrinks by $1tn  By removing one of the largest buyers from government bond markets, the Fed’s balance sheet reduction — known as quantitative tightening — adds to the supply of debt that private investors have to absorb. https://englundmacro.blogspot.com/20...

  Englund: QT (englundmacro.blogspot.com)   2023-09-18 Odds of the Fed reducing inflation without a recession have improved, but... Englund: Odds of the Fed reducing inflation without a recession have improved, but... (englundmacro.blogspot.com) The  worst selloff  of longer-term Treasuries in more than four decades is putting a spotlight on the market’s biggest missing buyer: the  Federal Reserve . Bond Market’s ‘Vicious Cycle’ Risk Puts Spotlight on Fed’s QT - Bloomberg Englund: QT (englundmacro.blogspot.com)

On the eve of recessions in 1990, 2001 and 2007, many Wall Street economists  economists proclaimed the U.S. was on the cusp of achieving a soft landing, in which interest-rate increases corralled inflation without causing a recession.  Since World War II, economists say, the U.S. has achieved only one durable soft landing, in 1995. “We steered the economy very expertly, but in addition, we were lucky. Nothing bad happened,” said Alan Blinder, an economist who was Fed vice chair from 1994-96. Here is what could go wrong this time. First, if the Fed holds rates too high for too long, it would risk an unnecessarily severe downturn.  The economy stays too hot Energy prices take off A financial-market mishap. The Fed held interest rates near zero for seven years after the 2008-09 financial crisis and lifted them to still-historically-low levels in the years before the pandemic brought rates back to zero. As a result, some financial firms and businesses might have made investm...

From those who prematurely predicted that inflation would be “transitory,” we now hear claims of vindication.  As Humpty Dumpty says to Alice: “When I use a word, it means just what I choose it to mean — neither more nor less.”  Inflation has been above target for nearly two and a half years. Whenever it returns to 2%, we’ll be told: “That’s what we meant by transitory!” I keep having to remind people that the dream of pain-free disinflation was a recurring delusion of the 1970s. The only times the Fed succeeded in bringing inflation down in that unhappy decade there were recessions: in 1970, 1974-75 and 1980. A key part of the story is obviously that President Joe Biden’s administration is providing more than $2 trillion to subsidize investment in infrastructure, green technology and microchips.  But there is also the resilience of the housing market,  illustrating how much less sensitive Americans are to rises in mortgage rates than they were 15 years ago. Despite ...

 By removing one of the largest buyers from government bond markets, the Fed’s balance sheet reduction — known as quantitative tightening — adds to the supply of debt that private investors have to absorb.  For the central bank, quantitative tightening can be a precarious path. It was forced to end its previous attempt in 2019 after the balance sheet unwinding contributed to a sharp spike in borrowing costs that spooked markets. Financial Times 11 August 2023 https://www.ft.com/content/62451148-cad1-4caa-bac6-7d78648889d6

Excess demand triggered by the fiscal and monetary response to the pandemic merely exacerbated imbalances created by the policy response to the global financial crisis (GFC) of 2008-10. Moreover, post-GFC financial reforms inadvertently encouraged regulatory arbitrage, paving the way for an exponential increase in the share of financial assets held by lightly regulated nonbank financial institutions such as hedge funds and crypto exchanges.  These institutions currently account for roughly half of all financial assets, thereby exacerbating systemic risks. Central banks missed the opportunity to embark on serious quantitative tightening in the post-GFC decade. MARIO I. BLEJER  and  PIROSKA NAGY MOHÁCSI Project Syndicate 3 August 2023 https://www.project-syndicate.org/commentary/post-pandemic-recovery-is-still-in-progress-by-mario-i-blejer-and-piroska-nagy-mohacsi-2023-08 Did they really think there would be no financial consequences to keeping interest rates at or near zer...

The Bank of England’s fourteenth rise in interest rates is unscientific, unnecessary, and underestimates the powerful global forces washing over these islands.  It pushes policy further beyond the safe or useful therapeutic dose for no clear purpose other than validating expectations on the futures market. The Bank is the only big central bank that is actively selling bonds under its turbo-charged policy of quantitative tightening (QT), an experiment that has never been tried before and is much harder to calibrate than officials pretend. There is a high risk that the Bank is incubating a full credit crunch that will bankrupt tens of thousands of viable businesses.  Once such a process is allowed to happen, it can snowball into a destructive cascade that is extremely hard to stop and inflicts years of damage on society.  Ambrose Evans-Pritchard Telegraph 3 August 2023  https://www.telegraph.co.uk/business/2023/08/03/the-british-economy-is-being-hit-by-four-policy-shoc...

 QT, letting Fed bond holdings mature without replacement, draining cash from the financial system. “We didn’t see it coming,” Powell acknowledged referencing the sudden problems that emerged in 2019 and forced the central bank into steps it didn’t want. The advantage now is “we have experience,” he said. The Fed is currently shedding its bond holdings at an annual pace of roughly $1 trillion There are still more than $3.2 trillion of bank reserves parked at the Fed, There’s another big element of liquidity on the Fed’s balance sheet — the reverse repo facility. Known as RRP, money-market funds have used it to park cash. And that account stands at more than $1.8 trillion. Bloomberg 9 July 2023 https://www.bloomberg.com/news/articles/2023-07-09/fed-s-qt-ghosts-are-haunting-powell-bid-to-shrink-balance-sheet Reality and markets rolled over them.  They didn’t see the slowdown coming, and only after markets dropped 20% in December did they change their policy stance and have now c...

 So much then for central bank quantitative tightening, the much-mooted unwinding of the massive stimulus programmes to support markets and economies. In a world of excessive debt, large central bank balance sheets are a necessity. So, forget QT, quantitative easing is coming back. The pool of global liquidity — which we estimate to be about $170bn — is not going to shrink significantly any time soon. The CBO estimates that Fed holdings of US Treasuries will have to rise to $7.5tn by 2033 from current levels of nearly $5tn.  No QT here, but worse, these CBO spending projections are likely too low. More realistic numbers point to required Fed Treasury holdings of at least $10tn. Michael Howell  FT 28 June 2023 https://www.ft.com/content/6d14cad1-00f2-4d39-969f-c01ae1860d34 The writer is managing director at Crossborder Capital and author of  ‘Capital Wars: The Rise of Global Liquidity’ https://www.amazon.com/Capital-Wars-Rise-Global-Liquidity/dp/3030392872

 ... for bowing to pressure from inflation headbangers and joining the grotesquely-mistimed monetary stampede. Having stoked an inflationary storm by monetising the post-pandemic recovery with zero rates and extra lacings of QE, it is now committing the opposite error at the worst moment in the cycle by over-tightening into a deepening global downturn. You don’t have to be a monetarist to see danger in the precipitous contraction of all key measures of the money supply over recent months, even adjusting for the legacy stock of pandemic savings. The key aggregates never came close to turning negative in this way during the 1970s. The Bank of England and its acolytes have a bad habit of misrepresenting what serious monetarists actually say. It propagates strawman arguments based on a pidgin caricature of the quantity theory of money – an approach best expounded by Keynes (yes, Keynes) in his Tract on Monetary Reform. Ambrose Evans-Pritchard Telegraph 22 June 2023 https://www.telegrap...

 One mistake he will concede was on the impact of the bailout of depositors, and whether it was a form of a monetary stimulus. “At the time, we said it was not QE,” says Wilson. “While that is true from a technical aspect – i.e. the Fed/FDIC are not buying bonds, but rather lending money to banks temporarily – it did add liquidity to the system and allowed banks to continue operating and extending credit.” That liquidity is set to evaporate, he says, with the issuance of Treasury bills after the debt-ceiling impasse was resolved. Wilson says up to $500 billion will be funded from bank reserves. “Historically speaking, the equity market does not trade well when we see such a drawdown in bank reserves. Combined with the fiscal drag, this should be a challenging cocktail for equity investors,” he says. Steve Goldstein MarketWatch 20 June 2023 https://www.marketwatch.com/story/wall-streets-leading-bear-is-doubting-himself-a-little-heres-what-is-worrying-morgan-stanleys-mike-wilson-now-...

 the Fed’s huge stock of Treasuries and mortgage-backed securities (mbs),  the face value of which has fallen from $8.5trn to $7.7trn.  Each month the Fed allows up to $60bn-worth of Treasuries, and $35bn of mbs, to mature without reinvesting the proceeds.  Now it must decide when to stop. The return of high inflation makes qe’s reversal (quantitative tightening, or qt) desirable The more troubling reason is that, just like raising short-term rates, qt can inflict its own damage. Having been tried only once before, from 2017 to 2019 and at a much slower pace, its side-effects are poorly understood.  That does not make them less dangerous.  By sucking cash out of the system, the previous bout of qt prompted a near-failure of the money markets America’s Treasury, meanwhile, is set to soak up yet more liquidity. It must sell more than $1trn of debt over the coming three months to rebuild its cash buffers  The Economist 15 June 2023 https://www.economist.c...

 ECB repeated its warning that it expects inflation “to remain too high for too long” as it will not return to its 2 per cent target for another two years. The ECB started raising rates several months after the Fed and, at 6.1 per cent, inflation is now higher in the eurozone than in the US. The ECB raised its forecast for core inflation to 5.1 per cent this year, 3 per cent next year and 2.3 per cent in 2025 FT 15 June 2023 https://www.ft.com/content/25c99f1d-c730-4ab8-a7ff-7aca6bcd35b9 ECB meddelade också att återinvesteringarna av förfallande räntepapper inom ramen för det gamla köpprogrammet APP upphör vid halvårsskiftet. Det innebär att balansräkningen kommer att krympa snabbare. Viktor Munkhammar DI 15 juni 2023 https://www.di.se/analys/hokaktig-lagarde-okar-risk-for-fler-svenska-hojningar/ ECB om APP och PEPP https://englundmacro.blogspot.com/2022/09/raise-three-key-ecb-interest-rates-by.html ECB is having a harder time reversing years of massive asset purchases. Otmar Issin...