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Federal Reserve balance sheet reduction monitor, 3/16/2018

The Federal Reserve’s balance sheet reduction plan calls for selling treasury, agency and mortgage-backed securities starting in 2017Q4. The rate of selling is $30 billion per quarter in 2017Q4 and increases by $30 billion per quarter until it hits $150 billion per quarter. One can keep track of their progress by monitoring the H41 filings.

Here are the results thus far:

Quarter to Date Treasury Agency+MBS Total
12/27/17 2454219 1769317 4223536
3/14/18 2424562 1772979 4197541
Change -29657 +3662 -25995
% of Goal Achieved 101% -19% 53%

 

Since Inception Treasury Agency+MBS Total
9/27/17 2465427 1774917 4240344
3/14/18 2424562 172979 4197541
Change -40865 -1938 -42803
% of Goal Achieved 88% 6% 55%

 

Federal Reserve balance sheet reduction monitor, 3/9/2018

The Federal Reserve’s balance sheet reduction plan calls for selling treasury, agency and mortgage-backed securities starting in 2017Q4. The rate of selling is $30 billion per quarter in 2017Q4 and increases by $30 billion per quarter until it hits $150 billion per quarter. One can keep track of their progress by monitoring the H41 filings.

Here are the results thus far:

Quarter to Date Treasury Agency+MBS Total
12/27/17 2454219 1769317 4223536
3/7/18 2424402 1764382 4188784
Change -29817 -4935 -34752
% of Goal Achieved 112% 28%  78%

 

Since Inception Treasury Agency+MBS Total
9/27/17 2465427 1774917 4240344
3/7/18 2424402 1759991 4188784
Change -41025 -10535 -51560
% of Goal Achieved 94% 36% 71%

 

Federal Reserve balance sheet reduction monitor, 3/2/2018

The Federal Reserve’s balance sheet reduction plan calls for selling treasury, agency and mortgage-backed securities starting in 2017Q4. The rate of selling is $30 billion per quarter in 2017Q4 and increases by $30 billion per quarter until it hits $150 billion per quarter. One can keep track of their progress by monitoring the H41 filings.

Here are the results thus far:

Quarter to Date Treasury Agency+MBS Total
12/27/17 2454219 1769317 4223536
2/28/18 2424242 1759972 4188605
Change -29977 -4954 -34931
% of Goal Achieved 126% 31% 88%

 

Since Inception Treasury Agency+MBS Total
9/27/17 2465427 1774917 4240344
2/28/18 2424242 1759972 4188605
Change -41185 -10554 -51739
% of Goal Achieved 100% 39% 76%

 

Federal Reserve balance sheet reduction monitor, 2/23/2018

The Federal Reserve’s balance sheet reduction plan calls for selling treasury, agency and mortgage-backed securities starting in 2017Q4. The rate of selling is $30 billion per quarter in 2017Q4 and increases by $30 billion per quarter until it hits $150 billion per quarter. One can keep track of their progress by monitoring the H41 filings.

Here are the results thus far:

Quarter to Date Treasury Agency+MBS Total
12/27/17 2454219 1769317 4223536
2/21/18 2432066 1773689 4205755
Change -22153 +4372 -17781
% of Goal Achieved 105% -31% 50%

 

Since Inception Treasury Agency+MBS Total
9/27/17 2465427 1774917 4240344
2/21/18 2432066 1773689 4205755
Change -33361 -1228 -34589
% of Goal Achieved 87% 5% 54%

 

Inflation monitor as of 2/21/2018

Inflation has been trending downwards for decades. We think the following factors have created this long-term trend:

  • an aging population that buys less
  • wage competition from third-world countries, due to globalization.

With talk of border taxes and rolling back globalization (at least partially), plus massive fiscal stimulus, can we assume that the downward inflation trend will continue from here? We don’t know, but we intend to track the numbers. This post reviews a wide range of market-based and statistically derived measures of inflation.

Recent indicators suggest accelerating of inflation.

Our takeaway: the annual rate of inflation is probably 1.75%-2.75%.

Backward-Looking Measures

Consumer Price Index (CPI) – changes

The CPI is calculated by the government. More than a few investors view the index with a degree of skepticism.

CPI: +2.08%

Median CPI: +2.56%

Core CPI: +1.80%

PCE deflator: +0.80%

GDP deflator: +1.36%

Sticky CPI: +2.18%

Trimmed Mean PCE: +1.81%

Producer Price Index (PPI) – changes

The PPI is calculated by the government. Some investors regard it with suspicion:

Finished Goods: +3.00%

Wages

Wages are very important because they account for such a large portion of the cost of goods and services.

Average hourly earnings: +2.85%

An increase in average hourly earnings does not translate into an equal amount of inflation. Increases in productivity can offset (entirely or partially) the inflationary effect of higher wages.

Purchasing Manager’s Index

The Institute for Supply Management publishes the results of a monthly survey of their members, including a price diffusion index. A diffusion index doesn’t tell us the rate of inflation, but rather what percentage of the survey respondents are seeing prices go up or down.

The survey results suggest no significant inflationary pressures.

Manufacturing Prices: 72.7

Services Prices: 61.9

Forward-Looking Measures

Treasury Inflation Protected Securities

In addition to ordinary bonds, the U.S. Treasury issues inflation-protected securities (TIPS). By comparing the yields, one can infer the inflation forecast of the capital markets.

Ordinarily one should assign high credibility to this type of information. However, caution may be appropriate given extensive central bank manipulation of the credit markets.

Five Year Forecast: +1.98% per annum (5Y Treasury Yield5Y TIPS Yield)

Ten Year Forecast: +2.11% per annum (10Y Treasury Yield10Y TIPS Yield)

5-Year, 5-Year Forward Inflation Expectation Rate

Inflation expected from 5 years from now to 10 years from now: +2.24%

Michigan Consumer Sentiment

1-Year Expected Rate of Inflation: +2.7

5-Year Expected Rate of Inflation: +2.5

ECRI U.S. Future Inflation Gauge

ECRI +0.7

Trend-based indicators

Crude Oil: Uptrend = inflationary pressure

Copper: Uptrend = inflationary pressure

U.S. Dollar: Downtrend = inflationary pressure

Federal Reserve balance sheet reduction monitor, 2/16/2018

The Federal Reserve’s balance sheet reduction plan calls for selling treasury, agency and mortgage-backed securities starting in 2017Q4. The rate of selling is $30 billion per quarter in 2017Q4 and increases by $30 billion per quarter until it hits $150 billion per quarter. One can keep track of their progress by monitoring the H41 filings.

In the most recent week, the Federal Reserve bought more than $11 billion, perhaps to inject liquidity into volatile markets.

Here are the results thus far:

Quarter to Date Treasury Agency+MBS Total
12/27/17 2454219 1769317 4223536
2/7/18 2436173 1776318 4212491
Change -18046 +7001 -11045
% of Goal Achieved 98% -57% 36%

 

Since Inception Treasury Agency+MBS Total
9/27/17 2465427 1774917 4240344
2/7/18 2436173 1776318 4212491
Change -29254 +1401 -27853
% of Goal Achieved 82% -6% 47%

 

Federal Reserve balance sheet reduction monitor, 2/12/2018

The Federal Reserve’s balance sheet reduction plan calls for selling treasury, agency and mortgage-backed securities starting in 2017Q4. The rate of selling is $30 billion per quarter in 2017Q4 and increases by $30 billion per quarter until it hits $150 billion per quarter. One can keep track of their progress by monitoring the H41 filings.

Here are the results for this quarter:

Date Treasury Agency+MBS Total
12/27/17 2454219 1769317 4223536
2/7/18 2436192 1765134 4201326
Change -18027 -4183 -22210
% of Goal Achieved 115% 40% 85%

Here are the results since inception:

Date Treasury Agency+MBS Total
9/27/17 2465427 1774917 4240344
2/7/18 2436192 1765134 4201326
Change -29235 -9783 -39018
% of Goal Achieved 89% 45% 71%

 

Federal Reserve balance sheet reduction monitor, 2/5/2018

The Federal Reserve’s balance sheet reduction plan calls for selling treasury, agency and mortgage-backed securities starting in 2017Q4.  The rate of selling is $30 billion per quarter in 2017Q4 and increases by $30 billion per quarter until it hits $150 billion per quarter.  One can keep track of their progress by monitoring the H41 filings.

Here are the results for this quarter:

Date Treasury Agency+MBS Total
12/27/17 2454219 1769317 4223536
1/31/18 2436211 1765134 4201345
Change -18008 -4183 -22191
% of Goal Achieved 139% 49% 103%

Here are the results since inception:

Date Treasury Agency+MBS Total
9/27/17 2465427 1774917 4240344
1/31/18 2436211 1765134 4201345
Change -29216 -9783 -38999
% of Goal Achieved 97% 49% 78%

 

Federal Reserve balance sheet reduction monitor, 1/5/2018

The Federal Reserve’s balance sheet reduction plan calls for selling a total of $10 billion per month of treasury, agency and mortgage-backed securities starting in 2017Q4. One can keep track of their progress by monitoring the H41 filings.

With the 2017Q4 results in, they apparently have not met their self-determined goal despite aggressively selling assets in the last two weeks:

Date Treasury Agency+MBS Total
9/27/17 2465427 1774917 4240344
1/3/18 2448208 1769320 4217528
Change -17219 -5597 -22816
12/31/17 Goal -18000 -12000 -30000
% Achieved 96% 47% 76%

According to the Federal Reserve’s plan, the rate of selling in 2018Q1 is supposed to double the rate of 2017Q4.  We will of course monitor their progress.