The removal of Wells Fargo's asset cap in June is already benefiting market functioning and foreshadows further improvement from regulatory changes that would reduce balance sheet costs. Since its removal, Wells Fargo has increased activity in balance sheet intensive activity such as repo financing and market making. This has eased financing conditions by moving funds that were sitting into the RRP into the hands of leveraged investors. The bank also notably increased its inventory of […]
The subdued bank commercial and industrial loan growth along with growing concern in private credit foreshadows a period of slowing economic growth. C&I loans had appeared to be growing, but the growth disappeared with revisions and is only slightly higher on the year. The Administration's Big Beautiful Bill and push towards banking deregulation does not yet appear to be bearing fruit. Bank loan growth this year has instead largely gone to non-depository financial institutions, which […]
Trump appointees appear to be pushing for lower short rates, but a couple of them are balancing this with very hawkish views on the balance sheet. With reserves dropping below $3t, the Fed is thinking about how its balance sheet will ultimately look as QT winds down. Waller and Bowman have kicked off the discussion by outlining their views on the size, composition and pace of transition. Their proposals suggest upward pressure on long rates […]
The Administration's shift towards fixing trade imbalances by demanding countries to reinvest their foreign reserves into the U.S. can boost U.S. growth, but also creates upside risk to yields. Instead of requesting a currency adjustment, Trump has been asking a number of trade surplus countries to invest hundreds of billions of dollars into the U.S. These sums are to be financed out their sizable foreign reserves, which were in part accumulated from decades of trade […]
The Fed's embarkation on a series of insurance cuts is more than priced into the market, but the economic impact may be limited. Longer dated yields have remained range bound despite anticipated cuts with mortgage rates appearing to be floored at around 6%. That may not be enough to stimulate demand as homebuilders have suggested they would correspondingly reduce buyer incentives to protect profit margins. The level of mortgage rates is also not low enough […]
The market is set up for a hawkish disappointment as the September Fed meeting is unlikely to validate the aggressive number of cuts in market pricing. Despite disappointing employment numbers, the economic data is still broadly evolving in line with median FOMC projections. The June dot-plot guided towards cautious and measured cuts over the coming months as inflation is projected to only gradually glide towards target. In contrast, the market is pricing a series of […]