Back on April 9, when markets were just emerging from chaos after the Fed had thrown $1.5 trillion at them in the span of four weeks, Fed Chair Jerome Powell said in a webinar at Brookings that “when private markets are once again able to perform their vital functions of channeling credit and supporting economic growth, we will put these emergency tools away.”
This matched what he and other Fed officials had said in the year or so before the Crisis, that at the “next crisis,” they would throw all the Fed’s might at the problem up front, and then they’d back off, rather than let QE drag on for years. And they did.
By peak-QE in early June, the Fed had increased its assets by $2.86 trillion. It has since then whittled this increase down by $248 billion. Note the systematic front-loading then tapering the asset purchases and letting assets top out at $7.16 trillion, and then letting them decline, now down to $6.92 trillion:
Repo balances dropped by $34 billion, to just $41 billion, the lowest since the Fed starting ramping up repos. Repurchase agreements are on the way out. There were zero overnight repos on the balance sheet, and only some older term repos that hadn’t unwound yet.
The Fed made repos less attractive over time. On June 16, it raised the bid rate, and for market participants there are now better deals available in the repo market. The Fed is still offering theoretically huge amounts of repurchase agreements every day, but there are no longer any takers...
- Source, Wolf Street Report, read more here
