So, I was thinking about financial system plumbing over coffee this morning, because that's what normal people do right? And it's Thursday, so I checked in with the real source for all things Fed - Matt Boesler (see earlier Thursday's with Boes post) and he patched me over to this little bit of awesomeness from Sep 1.
Now, it's no secret I've been anxiously waiting for the Death Star to get fired like Linus for the Great Pumpkin. Ever since the "tests", I've been convinced that the FAFRRRF is a monetary policy tool with the sucking force of that cone shaped thing with the light in it that almost ate the Enterprise on Star Trek -1967 The Doomsday Machine.
But where was I?? Oh ya, so there's a couple, three trillion in "money" out there between excess reserves and stuff the Fed bought and the big debate this week is allegedly about whether or not the FOMC should adjust the funding corridor (and the peripherals) on which all this "stuff" operates. As we've argued before, a floor based system has been adopted under the quaint notion that too much sloshing around could pressure the rate below the aimed at target. Anyone who's ever been even remotely engaged in the market fears a break of the ceiling not the floor when talking about rates.
Thus, the Fed Heads feel compelled to soothe the nervous souls with yammerings of "one and done" and so forth and such as, because most US Americans don't have maps.... SO, its now Feb 2016 and the corridor is a wee bit higher, and the system is a good bit de-leveraged (happenin' now) and the Fed has checked out publicly- except for all that darn "stuff." See, it has to go bye-bye. The Death Star will suck up at least a trillion a shot, and as Boes shows, foreigners could get real hungry for more. And the supposed to be painless "roll off" of a T or a T and a half of securities actually has a possible side-effect list longer than the latest mood elevation drug. In fact, by the end of 2017, a date much closer than you think with the 2 year note at .72 (up from .53 this time last year ) the projected FF rate is around 1.5% and the system is 2T lower !
I don't know what the Fed does next week. I hope they go. Either way, they're gonna go soon. No one's ever pulled it off. I'm really excited to find out - Can we actually get there from here?