MARCH 23, 2023 – The most critical issue the Fed has to address right away is stopping the outflow of deposits from banks. It started 2 quarters ago and accelerated with the SVB debacle. The outflow continues.
The consumer is aware of the risk of having money in banks and can get a 4%+ interest rate in money market funds. Why keep money in a bank at 0.5%?
Money market funds have a sudden excess of funds and are using the Overnight Reverse Repo Agreement market to park those funds with the Fed. This is where the Fed can start QE4 – put a limit on how much money can be deposited in the ORRA.
If they use this tool, they will be making a major statement and shift in policy. Watch for this. It might be like March 2009 when they went full throttle with QE and the stock market bottomed never to see that level again.
We shall see….
Shalom,
The Mann