Ignore All the Hysteria, the Fed's Repo Fix Is Not QE

Last month, an unusual thing happened in the overnight credit markets. Overnight repurchase agreement (repo) rates surged, departing from their typically tight relationship with the fed-funds target rate to hit a high near 6% intraday, before the Fed eventually intervened. Headlines went wild, calling the intervention the first since the financial crisis and offering jargon-laden explainers of this dry subject, many tinged with more than a little fear. But as we wrote at the time, this was benign—more a return to normal monetary policy that existed pre-2008 than a sign of impending doom. Now, to address volatility in short-term funding markets, the Fed has resumed expanding its holdings of Treasurys—a move some see as resuming quantitative easing (QE). Folks, in our view, it isn't anything of the sort. Here is why.