The Fed Is Going To Reverse Course Quickly It Seems
If The BTFP Is Allowed To Expire, The Fed Will Reduce Rates Sharply In 2024
If the BTFP is allowed to expire on March 11th, the Fed will reduce its Fed Funds rate sharply in 2024.
It will be fascinating if the Fed allows the Bank Term Funding Program (BTFP) to expire on March 11th as was reported last night. Fed Vice Chair for Supervision Michael Barr says the Bank Term Funding Program 'worked as intended'.
The BTFP has served as a crutch that has allowed banks to mark up their collateral to par value. That collateral (debt securities) has been underwater as banks purchased it when interest rates were at or near zero (rates and prices are inversely related). Thus, if the Fed in fact allows the BTFP to expire on March 11th, what will provide support to that underlying bank collateral? Lower interest rates would solve for that equation.