Federal Reserve Initiates Rate Cut and Balance Sheet Expansion
The big headline of the week was the Wednesday Federal Reserve rate cut, which brought the funds rate to 3.5%. But an underlying note was the Fed’s announcement that it would immediately start buying Treasury bills at a rate of $40 billion per month. While they called it “technical buying” to help manage market liquidity, it’s still an expansion of the Fed’s balance sheet and a complete about-face from just a few months ago. The Fed is back in the quantitative easing cycle, and risk assets, such as stocks, are rising. Pay attention and allocate accordingly.
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