The Fed did a $60 billion overnight repurchase agreement this morning which is within their plans as far as I can see, but some pundits have noted that the FED is reducing the overall balance of REPOs outstanding–which is a part of why we saw the balance sheet assets fall.
I am most curious to see a new statement from the FED on the next 30 days. They should be publishing their plans any day now and it will give us a peek at what they plan (of course subject to change if the stock market pukes).
We saw the FED reduce the balance sheet last week by $24 billion, but I would be shocked if this was anything more than ‘timing’–maybe partially fueled by some reduced overall REPO balances.
A person could spend a day dissecting FED actions and learn absolutely nothing. For all of this to be meaningful we need to see weeks of reduced REPOs and weeks of balance sheet reductions (the REPOs are part of the balance sheet). Then we would know that there is a purposeful reduction in liquidity–instead of just timing. The markets will ‘sniff’ this out and at that point we will find out if the equity markets are going to accept it or if they are going to throw a ‘taper tantrum’.