As the Fed steps in to prevent a crisis in the US banking system, analysts are questioning whether the Fed has chosen to back away from its quantitative easing measures.
Last week’s banking crisis in the US pushed Wall Street over the edge giving hints of another 2008-like financial crisis. However, the Federal Reserve and other agencies intervened by pumping a new $300 billion into the economy. thus increasing your balance.
This has served as temporary oxygen for the global market, as all three major US indices gained significantly on Thursday, March 16. This $300 billion came from the Fed’s emergency liquidity line and will help troubled banks meet their short-term liquidity. needs.
US banks borrowed approximately $164 billion combined from the Federal Reserve. In addition, federal regulators and agencies provided an additional $140 billion “to new bridge banks for Silicon Valley Bank and Signature Bank established by Federal Deposit Insurance Corp.” reported Reuters.
As a result, the total balance sheet of the Federal Reserve increased once again by $300 billion. These measures lead to a substantial reduction in the balance sheet reduction efforts that the Fed has been undertaking over the past six months.
However, some analysts are pleased that the Fed’s intervention has helped prevent contagion from spreading to other banks. Thomas Simons, money market economist at investment bank Jefferies, said:
The numbers, as we see them here, are more consistent with the idea that this is just an idiosyncratic problem in a handful of banks. The government’s support efforts are likely to work and the size of the numbers reported by the Fed on Thursday suggests that “it’s not like a big problem across the system.”
Has the Fed Pivoted Toward Quantitative Easing?
The recent Fed action shows that the Fed is recalibrating its tightening efforts and could appear to be turning once more towards QE. All eyes are currently on next week’s Fed meeting, where analysts expect either a pause in rate hikes or a 25 basis point hike at most.
However, the current market chaos has not stopped the European Central Bank from continuing to hike rates. On Thursday, the ECB announced another 50 basis point hike despite the fact that the Credit Suisse crisis broke out this week.
The US dollar jumped on Thursday, as the Fed announced its decision to inject $300 billion into the economy. Although the Fed increases its balance sheet, this is not QE, writes Daniel Dubrovsky, a senior strategist at Daily FX. He wrote:
“Make no mistake, this is not QE. In the chart below, you can see that while overall holdings increased, directly held securities (mainly Treasuries) and Mortgage-Backed Securities (MBS) continued to decline as would be expected under quantitative tightening.”
Courtesy: DailyFX
Jump in the Bitcoin and Cryptocurrency market
Just as US stocks rallied on Thursday, Bitcoin and the broader cryptocurrency market joined the party. The world’s largest cryptocurrency Bitcoin (BTC) is up 7.39% in the last 24 hours and is currently trading at $26,756 and a market capitalization of $517 billion.
Altcoins have also joined the party with the top ten altcoins gaining 5-10%. The broader crypto market has added more than $70 billion to investor wealth.
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Bhushan is a FinTech enthusiast and has a good knack for understanding financial markets. His interest in economics and finance draws his attention to the new emerging markets of Blockchain technology and cryptocurrencies. He is continuously in a learning process and stays motivated by sharing the knowledge he has acquired. In his spare time, he reads thrillers and sometimes explores his culinary skills.
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