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Whetstone Analysis is closing down as of July 2, 2020

With thanks and apologies to my readers, Whetstone Analysis will officially close down as of 12:00 Noon, Thursday July 2. The website will remain open for a time, but no new content will be posted. -- Theresa Sheehan

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Comment: Minutes of June 9-10 FOMC minutes show Committee thinking about communications and policy tools

As of three weeks ago and still very much the case based on more recent comments from Chair Jerome Powell and other FOMC participants. The minutes of the June 9-10 meeting highlighted: ~The Fed views the challenges of navigating the COVID-19 as a public health crisis akin to a natural disaster and is deeply concerned about the lopsided impact on those least able to recover from the economic disruptions. Policymakers are worried about getting people back to work to ensure that lengthy separation from the workforce does not lead to erosion of skills and a connection with the job market.…

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On a break until July 1, 2020

Whetstone Analysis is taking a break until July 1, 2020. I will be keeping an eye on the data and news. If something of particular important comes up, I may sneak in a quick analysis. If you have a question, please feel free to email and I'll get back to you. Thanks and regards, Theresa Sheehan

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Comment: Chair Powell’s semiannual monetary policy testimony covers familiar ground

I didn’t hear anything that struck me as genuinely fresh on the outlook for monetary policy in either day of Chair Jerome Powell’s semiannual monetary policy testimony. In fact, I don’t think I hear much about monetary policy per se. There was a lot about the credit facilities and the need to stabilize financial markets and use the Fed’s powers as lender of last resort. Powell – in his role of spokesman for the Federal Reserve – said: Current monetary policy was appropriate, Rates are anticipated to remain near zero for a long stretch as seen in the Summary of…

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Comment: Chair Powell to deliver semiannual monetary policy testimony on Tuesday and Wednesday

The Federal Reserve dropped the Monetary Policy Report to Congress on Friday, June 12 in advance of Chair Jerome Powell’s semiannual monetary policy testimony before the Senate Banking Committee at 10:00 ET on Tuesday and the House Financial Services Committee at 12:00 ET on Wednesday. In keeping with efforts to limit the spread of COVID-19, both testimonies will be via video conference. I would look for the Chair’s prepared remarks to be released at 10:00 ET on Tuesday. I would note that the start time for the testimony before the House committee on Wednesday is two hours later than normal.…

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Comment: Fed’s balance sheet securities holdings creep toward $6 trillion in June 10 week average

The Federal Reserve bought $20.8 billion in Treasury notes and bonds and $0.3 billion in Agency MBS in the week ended June 10 averages. This brought the total for securities held outright to $5.981 trillion. The pace of securities purchases has steadily faded in recent weeks as markets have needed less support from these. However, as Chair Jerome Powell noted in his press briefing on June 10, the Fed is prepared to pick up the pace again if necessary. After month-end in the prior week, the use of repo and reverse repos has scaled back as short-term financing needs eased.…

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Preview: June 9-10 FOMC meeting should conclude that monetary policy remains appropriate

When the FOMC meets on Tuesday and Wednesday, June 9 and 10, it is too soon to look for any change in monetary policy. Fed policymakers have widely termed current monetary policy as “appropriate”. The main shift in tone of the FOMC meeting statement from the prior one on April 29 could be from a sense of being in the midst of crisis to one where policymakers have a better handle on the situation. They can effectively act to mitigate the damage now that the initial impact appears to have bottomed out. Crafting the right measures to stimulate the economy…

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Comment: Fed’s holdings of securities just under $6.0 trillion in week ended June 3

The Fed’s outright holdings of securities were up only $1.4 billion in the week ended June 3, rising to $5.960 trillion. Purchases of Treasury notes and bonds were up $21.3 billion to $3.796 trillion, while holdings of Agency MBS were down $19.9 billion to $1.835 trillion. The pace of purchases of Treasurys continued to slow, although it remained substantial. The decline in Agency MBS reflected the end of month and a time when maturing securities were more than the amount purchased. Use of repurchases and reverse repurchases increased toward month end as these normally do. Repos totaled $199.7 billion, up…

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Comment: Fed’s holdings of securities little short of $6 trillion in May 27 week

The Fed’s holdings of securities outright increased by $86.2 billion in the average of Wednesday, May 27 to $5.959 trillion as purchases of US Treasury notes and bonds and Agency MBS continue. Purchases of notes and bonds were up $27.0 billion while MBS were up $59.1 billion. While concerns remain about the ever-increasing size of the balance sheet and how it can be reduced after the crisis, the purchases have had the effect of calming financial markets and ensuring these have ample liquidity. Activity in repo markets remained elevated as of the May 27 week, although it is normal for…

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Comment: Fed’s Beige Book reflected increased severity of economic downturn

The Fed’s Beige Book for the period between early April and mid-May had all 12 Districts describing various levels of contraction – most of them severe in tone. The report attributed the declines to “disruptions associated with the COVID-19 pandemic”. Although conditions and the cause were unsurprising, it is dispiriting to see how thoroughly the economy has been affected. As for the future, the report said, “Although many contacts expressed hope that overall activity would pick-up as businesses reopened, the outlook remained highly uncertain and most contacts were pessimistic about the potential pace of recovery.” This is the second Beige…

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