The Fed's latest move has some observers warning that we could be about to experience another crash.
X user @FinanceLancelot cautioned: “The Federal Reserve's emergency BTFP dropped by a shocking $30 billion this week, leaving only $26 billion left.”
“Jerome Powell is pulling the liquidity rug away to trigger a crisis, exactly like Feb 2020,” he added.
The Bank Term Funding Program was set up by the Federal Reserve last year as an emergency lending program offering loans of as long as one year to credit unions, banks and other depositories that were able to use qualifying assets as collateral.
The idea was to give financial institutions some liquidity after a string of bank failures, including the high-profile Silicon Valley Bank collapse. The bank collapses prompted massive bank runs, with customers all trying to withdraw their deposits at once, and the banks lacked the liquid funds needed to satisfy customers’ cash requirements.
Now, however, with the federal reserve bank pulling more than half of the credit that was available in the program, banks could be under pressure once again, and some of them may struggle to cover cash withdrawals because their funds are tied up in Treasury Notes.
Some observers are also questioning the timing of the move, with the election not too far behind us.
One financial guru said: "It's almost as if they timed this, so that if the "wrong" candidate won the election, they could pull the rug out from the entire economy."
Fed chair and Trump could have contentious relationship
Earlier this year, president-elect Donald Trump suggested that Federal Reserve chairman Jerome Powell was “political” and may cut rates before the election in an attempt to help Democrats. In September, he did exactly that, cutting them by 50 basis points – although it did not stop Trump from winning.
Powell said yesterday that strong economic growth in the U.S. means policymakers have some time to decide how quickly to reduce interest rates moving forward.
Speaking to business leaders in Dallas, he said: “The economy is not sending any signals that we need to be in a hurry to lower rates. The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.”
He added that he thinks the domestic growth in the U.S. right now is “by far the best of any major economy in the world.”
This is despite the unemployment rate rising in recent months and October’s disappointing job growth figures.
Powell also believes that inflation will work its way back to their goal of 2%, although this week’s inflation data indicated a slight uptick in producer and consumer prices.
He was also asked about the possibility of Trump ousting him when he takes office. It’s been a hot topic since the election results came in, but Powell said last week that Trump would not have the authority to push him out and that he would consider a legal challenge should he attempt to do so.
“We’re thinking really just of getting inflation under control while keeping the labor market strong. We’re not thinking about political factors, which would, frankly, be a distraction to the already difficult work that we have to do,” he said yesterday.
Powell’s term as Fed chairman ends in 2026.
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