Author: Joseph Wang

The Administration is showing its hand in its efforts to control the Fed, and they are likely to have more success than the market anticipates. Long-time Trump advisor Kevin Hassett looks to be Fed Chair, and the Administration is floating ways to have more influence over the selection of regional Fed presidents. The efforts to dismiss Governor Cook continue with a Supreme Court hearing in January. There is enough fuzziness in monetary policy such that …

The biggest market impact of the Fed's balance sheet normalization may not be in the Treasury market, but in the corporate bond market. The QE programs shrank the privately available supply of safe assets and successfully pushed investors into riskier investments. The historical anomaly of the policy was not in its Treasury holdings, but in owning around 20% of the entire Agency MBS market. Many traditional Agency MBS investors responded by shifting towards higher yielding …

The shock in equity markets last week is more likely a correction than a trend change as the trajectory of monetary and fiscal policy is turning increasingly accommodative. The Fed looks to cut rates this December as well as resume its balance sheet expansion to dampen repo rate volatility. Trump has been moderating his policy stances in response to poor poll numbers, and looks to exercise all executive influence to stimulate the economy ahead of …

The Treasury market has defied expectations and performed well this year as investor behavior is little changed and as the U.S. Treasury adapted to investor demand. The large fiscal deficit, elevated political uncertainty, and potential loss of monetary policy independence that concerned investors earlier appear forgotten. Retail flows into bond funds remain strong, with October even seeing the strongest inflows since 2021. The increase in bond fund assets also contributed to further growth of the …

A 50 year mortgage would not be successful today, but it could be a tailwind to the housing market in a world with lower rates and more product knowledge. Longer term mortgages can improve housing affordability because they could reduce monthly payments by spreading repayment over a longer period of time. But longer loan terms also come with higher interest rates, which increase due to higher interest rate and prepayment risk. At the moment, a …

The Fed is likely begin expanding its balance sheet by year end at a rate of several hundred billion a year to maintain stability in the funding markets. The notable $50b in Fed repo borrowings on Friday suggests cash in the repo market is already running low even as demand for financing continues to grow. Further balance sheet expansion is necessary due the $2t fiscal deficit, which leads to both a higher Treasury General Account …

The subdued bank commercial and industrial loan growth along with growing concern in private credit foreshadows a period of slowing economic growth. C&I loans had appeared to be growing, but the growth disappeared with revisions and is only slightly higher on the year. The Administration's Big Beautiful Bill and push towards banking deregulation does not yet appear to be bearing fruit. Bank loan growth this year has instead largely gone to non-depository financial institutions, which …