Here's the "No BS" macro news for today.
-The Fed projected, back in early 2024, that they would likely end balance sheet reduction around this time and transition toward gradually increasing their balance sheet in line with nominal GDP (so that banks' fractional reserve lending remains unaffected with current regulations).
-It got pulled forward slightly, perhaps two or three months, by the government shutdown overfilling the Treasury cash account (i.e. sucking cash out of the broader financial system).
-The Fed previously announced they would stop reducing their balance sheet. Today they said they would start gradually increasing it. Powell said the baseline is $20-$25 billion per month, but due to current liquidity shortages and April tax day (which drains liquidity), they plan to increase it by $40 billion per month through April (which afterward in May, conveniently, is when Powell will be replaced as chairman with a presumably more dovish chairman).
-They're focusing on printing money to buy short-term duration Treasuries, not long-term. This is for the financial system, not economic stimulus per se, and so they won't be calling it QE.
-The Fed will now be structurally expanding their balance sheet while inflation is above their own target.
-This is a gradual print scenario. It's bullish for liquidity and liquidity-correlated assets, in general. It's not explosively bullish, but it does lean dovish.
-Nothing stops this train.
