Post-FOMC & QRA: what next?

Paid subscriber analysis

Well, this was some event. Let’s do the FOMC first.

The pause was expected (rates kept at 5.25-5.5), no surprise there. But the big news came in the policy announcement at 2pm:

"Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion"

This means the pace of QT is being reduced. That’s a dovish (bullish) sign.

The language in general was standard (“committed to bringing inflation down to 2%, remains elevated”, etc.), but the QT signal was significant. Especially since the Treasury decided not to cut coupon size (see below), so basically the Fed did it for them. Take, for instance, this sentence:

“The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities.”

And then we got the presser from Powell.