Is the Fed Gearing Up for a New Round of Quantitative Easing? Here Are the Possible Signs

“This is not QE. In no sense is this QE.”

That was Jerome Powell in early October, answering a reporter’s question on whether the Federal Reserve’s intervention in the overnight U.S. repo market constituted another round of quantitative easing (QE).

No, the Fed chairman insisted, the bank’s $60 billion-per-month Treasury purchases are intended simply to add extra liquidity to the financial system after repo rates spiked in September.

Be that as it may, because of the purchases, the Fed’s balance sheet is expanding again for the first time since the bank began to unwind in 2017. In fact, this is the fastest monthly rate of expansion since the initial round of QE began in December 2008.

federal Reserve Expanding Its Balance Sheet at Fastest Rate Since Financial Crisis
click to enlarge

Judging from this alone, you would think that we were on the brink of another financial crisis, even as Powell himself says the U.S. economy remains strong.

And it’s not just the U.S. According to Bloomberg calculations, the combined balance-sheet growth of the Fed, European Central Bank (ECB) and Bank of Japan (BoJ) will soon reach an estimated $100 billion per month.

Markets seem to be betting more accommodative measures are on the way. Since Powell’s October press conference, the S&P 500 has surged about 8.4 percent, putting stocks within striking distance of logging their best year since 2013.

Others see QE4 happening sooner rather than later. In a research report this week, Credit Suisse analyst Zoltan Pozasar told investors that, in order to calm short-term funding markets, the Fed will need to implement another round of quantitative easing “by year-end”—which is only three weeks away.