The Primary Dealers are the trading and market making behemoths who are tasked and privileged by the Fed with being the Fed’s sole counterparty in conducting the monetary policy operations. They are also the Primary Dealers for the US Treasury when the Treasury sells debt to the public, which it does almost every day now. Today those debt sales average more than $100 billion in new money per month.
At his recent dog and pony show with the beloved Wall Street media crowd, Fed Chair Powell laid out the outlines of a supposedly new policy. He said the Fed would adjust the rate of the bloodletting of its balance sheet under “normalization,” in response to bad things that might happen in the financial markets. He did this apparently because it has suddenly been revealed to the Fed through their keen powers of observation that “bad” market behavior might, just might, be related to that balance sheet “normalization.”
Will wonders never cease.
Now, lo and behold, we discover that that which Mr. Powell said the Fed might do, it has already started to do. The Fed has already started to slow the bloodletting — the rate at which it shrinks its balance sheet and pulls money out of the banking system.
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