Exciting! The RRP crisis has triggered a market surge. Can the Federal Reserve's balance sheet expansion allow the market to soar to its limits?
Why did the market suddenly surge upwards? Let me tell you, I mentioned before that the money in the reverse repurchase agreement tool was insufficient, and now it seems I was right. The Federal Reserve's previous balance sheet reduction operations appear to have reached their limit, and it is highly likely that they will begin to expand the balance sheet soon.
As the end of the year approaches, Wall Street banks are on high alert. Why? Because pressure in the money market is increasing. Some analysts say that this situation may prompt the Federal Reserve to seriously consider whether to take measures to provide some liquidity buffer to this market, which is as large as $12.6 trillion.
This week, the Federal Reserve's decision-makers will hold a meeting, which is the first meeting since they stopped reducing the balance sheet. There are already signs showing that reserves in the banking system are not as ample as before.
The Federal Reserve has yet to address the issues left behind after the balance sheet reduction, such as the composition of its Treasury bond portfolio. However, financing costs have remained high, and many market participants believe that the Federal Reserve's decision-makers need to come up with more specific measures to ease the tense situation, such as directly buying securities to replenish reserves.
Everyone is guessing that Federal Reserve Chairman Powell might reveal some hints about the next steps after the monetary policy meeting ends on Thursday, Beijing time.
Given the current situation, there is pressure at the 945 position above. I think the price could rise to the range of 960 - 980. Please note, I am talking about extreme situations, just like extreme sports; very few can reach this point. An even more extreme point is 1025. If the price rises higher than this, it would exceed my cognitive range.
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