The FOMC begins a two-day meeting today with a statement expect at mid-afternoon tomorrow. Bloomberg expects the Fed to announce that it will become more aggressive in buying US assets like Freddie and Fannie debt and perhaps US Treasuries.
The Fed’s balance sheet has shrunk 17% in recent weeks, a sign to Bloomberg that the Fed needs to do more. That balance sheet shrinkage is also a sign that banks may not be hording cash as much as they had been previously or they are not borrowing exclusively from the Fed. This is a sign of a return of function to the market and is a positive, not a negative as Bloomberg portrays it.
Either way, the market will be heavily focused on the Fed’s statement tomorrow afternoon for clues as to their next move as they ease quantitatively.
