Powell & President Tangle Over Interest Rates

[Kingran]

@eldemonio

How does the Fed lower rates, without lowering rates?

Yes, I am aware of the SLR change and posted about how that would release capital and further buyback. It is not clear whether the banks are going to buy additional treasuries because, while SLR creates capacity that doesn’t mean it will automatically translate to demand for treasuries.

The oncoming bank buyback

The Fed board voted 5-2 on Wednesday to propose changes to what’s known as the enhanced supplementary leverage ratio, … The revisions would reduce holding companies’ capital requirement under the ratio to a range of 3.5% to 4.5% from the current 5%. Their banking subsidiaries would see that requirement lowered to the same range from 6% This will release $200 ~ $225 B in capital for G-SIB. Here is the list of G-SIB JPMorgan Chase Citigroup Bank of America Bank of New York Mellon Goldman Sac…

Between stable coin and the SLR, there is additional $3 Trillion buying capacity is being created. But that may or may not have an impact on the longrates as most of that will go towards short-term bonds/ bills.