Fed Official Wonders Whether Treasury Market Can Handle Massive Issuance Alone

Wall Street Journal ^ | October 14, 2020 | Michael S. Derby

[karpov]

The Federal Reserve’s point man on financial regulation said the Treasury market has grown so large that some level of central bank involvement may need to continue to ensure orderly trading conditions.

Randal Quarles, the Fed’s vice chairman for supervision, was discussing the outlook for the central bank’s $120 billion-a-month in purchases of Treasury and mortgage debt. Those purchases ramped up in March as the central bank responded to market and economic stress caused by the coronavirus pandemic.

The functioning of financial markets has improved since the tumult earlier in the year, raising questions about whether the Fed could pull back on its asset purchases, even as it has shown no indication it plans to do that.

Mr. Quarles said the Fed may have to remain engaged in asset buying for some time simply because financial markets are dealing with too many Treasurys to handle on their own. Total public debt now stands at just under $27 trillion, up from $23 trillion in this year’s first quarter and $9.4 trillion in the first quarter of 2008, when the financial crisis was in full swing and the government was about to engage in a long-running surge in borrowing.

“It may be that there is a simple macro fact that the Treasury market, being so much larger than it was even a few years ago, much larger than it was a decade ago, and now really much larger than it was even a few years ago, that the sheer volume there may have outpaced the ability of the private-market infrastructure to kind of support stress of any sort there,” Mr. Quarles said in a virtual appearance before an event at the Hoover Institution.

It isn’t clear if the financial firms and other entities involved in the Treasury market can expand quickly enough

[karpov]

Full article. We can't afford more "stimulus" that expands the debt and (in the case of extended unemployment benefits) discourages work.

[HighSierra5]

In a word. No.

[Max in Utah]

Every day the bucket goes to the well
One day the bottom will drop out.
Yes, one day the bottom will drop out.