Panicky Fed Flooding Overnight Markets With Cash

September 20, 2019

It’s been a big week of geopolitical strife and potential crisis points for financial markets. The week began with one of the biggest single day oil spikes on record, then saw the Federal Reserve lose control of its own interest rate in the repo market before announcing another rate cut.

Yet these and other developments are having surprisingly little impact on Wall Street. We aren’t seeing huge stock market gyrations or a mass migration by investors into precious metals. The S&P 500 is essentially flat for the week while gold prices are trading modestly higher.

On Wednesday, the Federal Reserve cut its benchmark Fed funds rate by a quarter point. Though the move was widely expected, it was not without controversy.

The Federal Open Market Committee showed some unusual division within its ranks. One policymaker favored a bigger cut while two wanted no cut at all. The more hawkish voices within the Fed objected to the cut on grounds of inflation risk – especially following Monday’s $9 spike in crude oil.

Other current and former Fed officials are taking great umbrage at the idea of using loose monetary policy to help facilitate President Donald Trump’s trade policies. Of course, it is impossible to separate that particular objection from underlying political biases at the supposedly non-political Fed.

President Trump expressed dissatisfaction with what he continues to view as too slow a pace of easing. He hammered Fed chair Jerome Powell for having “No guts, no sense, no vision.”

Powell and company also apparently lack the ability to keep their own interest rate within the range they announce to the world. In the so-called repo market used by banks and other institutions for short-term funding needs, interest rates have surged above the Fed’s target level.

The abnormal activity in the repo market threatened the liquidity of banks and the stability of money market funds. Nervous Fed officials responded with a massive $203 billion injection of cash over the past few days. It was the central bank’s biggest emergency intervention into financial markets since 2008.

Yet investors seem totally complacent about the risks of another financial crisis taking hold. The lack of any fear gauges flashing in stock market suggests investors view the Fed’s reversion to rate cuts and Quantitative Easing as some kind of new normal.

Not even the growing threats of oil supply disruptions, war with Iran, and escalating conflict with Russia and China seem to register with Wall Street.

Wise investors will make sure they have their hedges in place well in advance of Election Day!

*********

Mike Gleason is a Director with Money Metals Exchange, a national precious metals dealer with over 50,000 customers. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales and logistics as well as precious metals investing. He also puts his longtime broadcasting background to good use, hosting a weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.

Gold ETFs outflow reaches Rs 462 crore in Apr-Aug of FY'17