Central-bank divergence & plumbing/liquidity-regime indicators
Key Questions
What is the current size and recent changes in the Federal Reserve's balance sheet?
The Fed's balance sheet stands at $6.7 trillion, increasing by $18 billion per week. This includes $381 billion in T-bills, $15 billion in buybacks, and rollovers of one-third of Treasuries, with no MBS sales, according to CIBC.
How is the Federal Reserve implementing quantitative tightening (QT)?
QT is a slow-motion play at a dovish pace, expected to last years. It involves gradual balance sheet shrinkage without aggressive measures like MBS sales.
What expectation gap does JPMorgan identify for future Fed rate cuts?
JPMorgan highlights an expectation gap for 2026 rate cuts, with the yield curve biased toward steepening. This signals potential dovish Fed policy amid fiscal stimulus.
What are the key indicators of central bank policy divergence?
The Fed remains sideways around 3% per Goolsbee, ECB targets 2%, and BoJ faces yen weakening above 160. NY Fed repo operations and FOMC splits add to hawkish views from figures like Warsh.
Will surging oil prices force a Fed policy pivot?
Oil above $111 has slow passthrough to inflation, unlikely to prompt a pivot. Fed's Williams notes energy-price surges work through the economy slowly without immediate inflationary pressure.
What is CIBC's view on discussions about the Fed's balance sheet?
CIBC says chatter about the U.S. Fed’s balance sheet is ahead of reality. Actual shrinkage remains gradual and measured.
What role do money market funds (MMFs) play in current liquidity conditions?
MMFs hold $6 trillion amid MOVE index fragility and stagflation risks. This highlights plumbing and liquidity-regime vulnerabilities.
Are Treasury buybacks adding liquidity despite QT?
Yes, Treasury buybacks add liquidity, slightly expanding the Fed balance sheet. However, the anticipated bull run in bonds has lagged behind these developments.
Fed BS $6.7T (+$18B/wk/$381B T-bills/$15B buyback/rollovers 1/3 Treas/no MBS sales-CIBC); QT slow-motion play (years-long, dovish pace); JPM 2026 cuts gap/curve steep; NY Fed repo/FOMC split/Warsh hawkishness; oil $111+ passthrough slow (no pivot); Goolsbee ~3% sideways; ECB 2%/BoJ yen>160; MMF $6T/MOVE fragility/stagfl.