Notes From Underground: The Fed As G-30 Proxy?

Last week’s FOMC meeting went as expected but the press conference actually provided some solid questions as the media put some pressure on Chair Jerome Powell. NPR actually received an answer to what TRANSITORY means to the Fed chair: Prices will stay but the process of inflation will stop or slow dramatically. Hmm, the continued use of the LUMBER and AUTO markets did not reflect that definition at all. It seemed that the authorities were pursuing the concept of roll back.

Steve Liesman asked the first group of questions and went after Powell, asking about the issue of inflation or employment being the most critical. Liesman was not aggressive in pursuit of this question but the genesis got the FED to discuss the employment issue: Both inflation and jobs play critical roles in the FED‘s decision to begin tapering ASSET PURCHASES.

Learn more about CQG's solutions for financial markets

Also, the FED and other central banks will strive to avoid the mistake that Powell made in 2018. It will either be balance sheet shrinkage OR interest rate increases, not both simultaneously.

Fed policy makers Neel Kashkari and Lael Brainard picked up on Powell’s concerns about the employment situation via weekend speeches and press appearances. Kashkari warned on “Face the Nation” that the Covid delta variant could be a problem for service jobs returning. Then, in an appearance at the Aspen Economic Strategy Group, Governor Brainard again noted, “while we are seeing progress on employment, joblessness remains high and continues to fall disproportionately on African Americans and Hispanics and lower-wage workers in the service sector.”

The FED has many voices of concern for social justice, which I believe prevents any premature tightening. Brainard summed it up thusly, “The determination of when to begin to slow asset purchases will depend importantly on the the accumulation of evidence that substantial further progress on employment has been achieved. As of today, employment has some distance to go.”

As we saw back in 2012-13, this gives the FED the ability to keep moving the goalposts. Remember when 6.5% unemployment was going to be the key barometer? This cements lower for longer.

Traders beware: The G-30 is a non-elected body that carries great influence with global financial authorities. The Fed announced Wednesday the permanent establishment of domestic and foreign repo operations. I believe this caused all asset classes to rally during Powell’s press conference. The DOLLAR sold off as it was revealed that besides a domestic repo there would be a foreign facility for up to $60 billion for any dollar-stressed institution.

What bothers me is that prior to the FED’s announcement, there was a story on the Financial Times’s website titled, “U.S. TREASURY MARKET NEEDS URGENT REFORM,WARN FORMER POLICYMAKERS.” It was put forward by the AUGUST group known as the G-30. This specific report was led by former Treasury Secretary Tim Geithner, who now heads up the private investment bank Warburg Pincus. (I advise my readers to examine the members of this group and judge the insider trading possibilities which exist.) There are many on this committee that I hold in high esteem and several that I hold in contempt.

The point remains that the financial media ran this story five hours before the announcement. More importantly, the establishment of a Standing Repo Facility, or SRF, acts to alleviate the onerous restrictions of the Supplementary Leverage Ratio since the exemptions ended March 31. (Remember, upon this announcement, the Fed said it may need to address the current design and calibration of the SLR due to the recent growth in the supply of central bank reserves and the issuance of Treasury securities.)

Senators Warren and Brown will be upset as the FT article said: “Without permanent changes to the SLR,’banks are highly unlikely to allocate more capital to market-making in the Treasury and treasury repo markets.” (Do not think that my complaint is based on market losses for as soon as I read this Fed plan I sold dollars and bought gold.)

The problem remains that the FED bent to the consultations of this illustrious non-elected group with potential for great financial impact. It further confirmed my hypothesis that the FED cannot lead the move to end QE but must be a laggard or suffer the consequences of an overly strong DOLLAR.

***One further point considering the financial impact of nation-states. On Friday, the Swiss National Bank announced that it made $47 billion dollars on its portfolio for the first half of the year, with reserves reaching $1.1 trillion. The SNB invests 25% of its reserves in global stocks as it continues to practice alchemy by printing SWISS FRANCS and selling them to keep the EUR/CHF cross under control. (Much of SWISS trade is with the EU.)

This gain on equities easy supplanted the $14 billion loss sustained from the BOND market. Again, the SWISS are a nation-state actor with a heavy influence on the scales of global financial outcomes. The FED buys its own bonds while the Swiss, Japanese, Russians, Chinese and others use the power of their foreign reserves, pensions, insurance funds, and sovereign wealth funds to acquire a myriad of assets. Wait for the G-30 to provide guidance for Powell and company.

Read more global macro content on


Trading and investment carry a high level of risk, and CQG, Inc. does not make any recommendations for buying or selling any financial instruments. We offer educational information on ways to use our sophisticated CQG trading tools, but it is up to our customers and other readers to make their own trading and investment decisions or to consult with a registered investment advisor. The opinions expressed here are solely those of the author and do not reflect the opinions of CQG, Inc. or its affiliates.