The line that matters here is that the Fed’s language can change, but the Wednesday balance sheet entries cannot.
A $155B TGA rebuild and $175B reserve drain is a very different liquidity backdrop than the one markets were leaning on last week. The fact that RRP rose alongside the TGA is the part that makes it more interesting — instead of one drain being offset by another source of cash, both fiscal and money-market plumbing moved in the same direction.
That also makes Warsh’s anti-forward-guidance stance feel more important. If the Fed is deliberately saying less about the future while the balance sheet is still producing large week-to-week liquidity swings, then markets have less narrative guidance and more hard plumbing volatility to absorb.
The question I’d be watching is whether this was a one-week tax/settlement distortion or the start of a tighter quarter-end liquidity pattern. If TGA stays elevated and RRP keeps firming, then the “contracting” signal matters more than whatever sentence was removed from the FOMC statement.
I’d push back slightly on the Bitcoin conclusion, though. The long-run scarcity argument is real, but the short-run liquidity channel can still dominate. A fixed-supply asset can still trade like a high-beta liquidity asset when reserves are falling and dollar liquidity is being pulled back into the Fed/Treasury complex.
Thanks for the comment! I think the no forward guidance thing will cause more uncertainty in the immediate term, but be good overall. It seems to me a way of admitting that forward guidance is wrong far too often and they need to get better with models and data that aren’t lagging. I looking at this report because I’m genuinely surprised sometimes.
I think it’s only a matter of time before they spend a large chunk of the TGA. Sitting near that $1T mark will be short lived IMO b/c they love to spend and have to spend.
I agree that Bitcoin is extremely liquidity sensitive, but my point is that in the longest time horizon, fiat is only going up. By a lot. And I believe there will more and more Bitcoin holders who have at least some that they will keep in self custody and never sell.
The line that matters here is that the Fed’s language can change, but the Wednesday balance sheet entries cannot.
A $155B TGA rebuild and $175B reserve drain is a very different liquidity backdrop than the one markets were leaning on last week. The fact that RRP rose alongside the TGA is the part that makes it more interesting — instead of one drain being offset by another source of cash, both fiscal and money-market plumbing moved in the same direction.
That also makes Warsh’s anti-forward-guidance stance feel more important. If the Fed is deliberately saying less about the future while the balance sheet is still producing large week-to-week liquidity swings, then markets have less narrative guidance and more hard plumbing volatility to absorb.
The question I’d be watching is whether this was a one-week tax/settlement distortion or the start of a tighter quarter-end liquidity pattern. If TGA stays elevated and RRP keeps firming, then the “contracting” signal matters more than whatever sentence was removed from the FOMC statement.
I’d push back slightly on the Bitcoin conclusion, though. The long-run scarcity argument is real, but the short-run liquidity channel can still dominate. A fixed-supply asset can still trade like a high-beta liquidity asset when reserves are falling and dollar liquidity is being pulled back into the Fed/Treasury complex.
Thanks for the comment! I think the no forward guidance thing will cause more uncertainty in the immediate term, but be good overall. It seems to me a way of admitting that forward guidance is wrong far too often and they need to get better with models and data that aren’t lagging. I looking at this report because I’m genuinely surprised sometimes.
I think it’s only a matter of time before they spend a large chunk of the TGA. Sitting near that $1T mark will be short lived IMO b/c they love to spend and have to spend.
I agree that Bitcoin is extremely liquidity sensitive, but my point is that in the longest time horizon, fiat is only going up. By a lot. And I believe there will more and more Bitcoin holders who have at least some that they will keep in self custody and never sell.