As we were preparing to publish this first Follow the Money article, Jay Powell announced that the Fed would once again start to expand its balance sheet by purchasing Treasury bills. This action is intended to expand bank reserves and it will certainly do that. Whether that matters or not is an entirely different question, one we think this article answers with a resounding “no”. The money market problems everyone finally noticed last month are not new to anyone who has been reading Jeff Snider for the last few years.
In many ways, what the Fed does with monetary policy is nothing more than kabuki theater. One need look no further than this announcement to confirm that policy is more about style and showmanship than substance. In his speech, Powell emphasized that this new expansion of the balance sheet is not stimulus, not a resumption of Quantitative Easing. One is left to wonder how the economy knows the difference.