Earlier today, president Trump prompted confusion in the market, when in his latest tweet urging the Fed to stop hiking, the president also said “Stop with the 50 B’s.” In the absence of other hints, this was taken to suggest that Trump also wanted the Fed to not only stop hiking but also end the shrinking of its balance sheet, which as we have discussed repeatedly started shrinking by a $50 billion cap ($30 billion Trasurys and $20 billion MBS) starting in October 2018 and continuing – supposedly – at least until the end of 2019.
Only there is a problem with this statement, because while the Fed is indeed limited by a previously mandated cap on how much it can shrink its balance sheet each month (i.e. $50BN) as TSYs and MBS mature, the reality is that the real number is far smaller as the Fed only has Treasury holdings that exceed the $30 billion cap when there are refunding auctions, while MBS holdings have traditionally been lower than the monthly cap since they are at the mercy of prepayment speeds.
So what does this mean in practical terms? When using the Fed’s own forecasts for actual Treasury and MBS redemptions, the monthly “50 B” number shrinks substantially, and over the period Oct 2018 – Dec 2019 averages to just $36.2 billion on average.
In other words, instead of raging at the 50 Bs, Trump should urge the Fed to “Stop The 36.2 Bs“… although considering the confusion the first statement prompted – after all the Fed’s monthly redemption schedule is hardly the first thing one would expect Trump to be tweet-raging about – it is perhaps best that Trump limited himself to broad strokes.
via RSS https://ift.tt/2Gv5Yr9 Tyler Durden