Fed Decision Wednesday
The World and the U.S. economy would be a better place without the Fed or any central bank for that matter. We have written ad nauseum as to why. In the meantime, the Fed is amid its FOMC meeting which will conclude Wednesday with a press release from the Fed concerning its view on rates.
My view is that the Fed will not take rate action tomorrow, but that it will cut rates at its March 20th FOMC meeting to coincide with its decision to allow its BTFP bailout to expire on March 11th.
The Fed is already positioning its discount window to be a BTFP replacement and is working through the media (see Bloomberg interview HERE) to condition investors to not penalize banks for borrowing from the discount window. The fact is that banks SHOULD be penalized for borrowing from the discount window. Discount window borrowing is a sign of weakness.
The other lie the Fed is perpetrating is that banks simply did not know how to use the discount window and that is why it had to create the BTFP. This is a flat lie. Banks borrowed from the discount window at record levels in March 2023 before the BTFP’s launch. Banks then shifted borrowing to the BTFP because it had favorable terms.
My guess is that the Fed will dramatically lower discount window borrowing rates by March and may even significantly reduce the collateral haircut it typically levies on borrowing banks, also in March.
Last, the Fed will give banks a break and reinflate their debt holdings by lowering its Fed Funds rate at the March 20th FOMC meeting.