To the disappointment of many, Powell did not lower the target rate by 50 points and did not announce a resumption of QE. Instead, the FOMC realigned both interest on excess reserves (IOER) and the reverse repo (RRP) rate lower by 5bp. Powell noted during his press conference that the Fed would use temporary open market operations (OMOs) “for the foreseeable future” to address pressures in funding markets.
However, and the reason why stocks shot up just before 3pm ET, is that that’s when Powell added that “it’s possible that we’ll need to resume the organic growth of the balance sheet, earlier than we thought. … We’ll be looking at this carefully in coming days and taking it up at the next meeting” in late October. Said otherwise, the Fed may not have announcer QE4 yesterday, but it will likely announce it in the very near future.
Sure enough, as Goldman wrote in its FOMC post-mortem, “we took this as a fairly strong hint and now expect the Fed to resume trend growth of its balance sheet in November with permanent OMOs. It is possible that the FOMC will take that opportunity to also reach a final decision on possibly shortening the maturity composition of its purchases, which it discussed at its May meeting.”
With all the OMO (or Perrys), the Fed’s Secured Overnight Finance Rate (SOFR) stabilized to normal levels.
And the repo rate returned to near normal with the massive intervention with OMO.
Fed Chair Jerome Powell (aka, Perry Omo). Hot diggity dog. …
On a side note, I tripped on a weight at the gym and fell against a weight machine. Fractured rib, badly swollen knee and dislocated perhaps broken finger(s). I call for a ban on power lifters dropping their weights and having them bounce in front of me!