While on the surface, it appears the Federal Reserve asset purchase taper has started, it’s not as easy to prove when you dig into the details.
The Fed is certainly not being as aggressive as they promised, and for good reason. As the Fed leaves the bond market, who will fill the gap? Since 2019, the Fed has quadrupled the Treasury purchases of international holders and has been one of the biggest players in the Treasury market.
The Fed added $82 billion in Mortgage-Backed Securities (MBS) and $65 billion in Treasuries to its balance sheet while allowing $22 billion in repo agreements to roll off the balance sheet. The net gain was $126 billion in the month that the “taper” was set to begin.
“Just because something is inevitable, does not make it imminent, but eventually the future arrives”
The US Government is on an unsustainable debt trajectory. Even though the Federal Reserve has acknowledged this fact, most mainstream pundits consider it a distant problem or even not an issue at all. They argue that debt fears have raged since the debt crossed $1T decades ago and no negative consequences have materialized.
