Powell signals Fed to keep buying bonds even as outlook improves

Bloomberg/Rich Miller

Repost from 2-23-2021

“The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” [Fed chairman Powell] told the Senate Banking Committee Tuesday.

USAGOLD note 1: Judiciously, Powell left the Fed’s options open and did not light a fuse on bond buying. To taper, or even hint at it, is to send interest rates on a tear and stock market investors heading for the exits. Meanwhile, the bond portfolio continues to pile up at the Fed and we haven’t even gotten around to the $1.9 trillion stimulus package. That legislation, by the way, this morning went out of Committee and is expected to be voted on and passed by the House later this week, according to press reports. Here is what the Fed’s swelling balance sheet looks like on a chart – heading towards $8 trillion.

USAGOLD note 2 (2-26-2021): With bond yields moving aggressively higher – the 10-year yield is now over 1.5% – the markets are judging the Fed chairman by his deeds not his words. At the moment, it does not appear that the printing presses are keeping up with an onslaught of bond selling that is pushing yields aggressively higher. The markets are reacting accordingly.

Federal Reserve Bank Balance Sheet
(2011-present)

Chart courtesy of TradingEconomics.com • • • Click to enlarge