Fed's Rosengren: "Quite Likely" The Fed's Balance Sheet Will Be Used In The Next Recession

Tyler Durden's picture

The Fed has not even announced the framework of what its balance sheet "normalization" would look like, and already Boston Fed president Rosengren is talking about the next Fed QE program. 

In a speech titled “The Federal Reserve Balance Sheet and Monetary Policy” delivered to Bard College on Wednesday afternoon, Rosengren said that structural changes in the macroeconomy "may necessitate more frequent use of large-scale asset purchases during recessions" and he said it is "quite likely" that the use of central bank balance sheets will be necessary in future economic downturns.

The reason?  A combination of low inflation, low rates of productivity growth, and slow population growth may imply an economy "where equilibrium short-term interest rates remain relatively low" by historical standards. In other words, the natural rate, or r-star, is so low, the Fed will only be able to hike rates a handful of times before it tip the economy over into contraction, requiring a new easing regime.

As a result, reductions in short-term rates to combat recessions will encounter the zero boundary and "will not be sufficient," Rosengren said – so "it is likely to be more common for central banks to engage in asset purchases to stimulate the economy by reducing longer-term rates."

"So balance-sheet expansions – and exits – are likely to become more standard monetary policy tools around the world."

As a quick reminder, for all the talk of tightening, central banks are currently creating just under $200 billion in new money every month...

... and the total size of the big 6 central banks is now over $18 trillion.

Still, to avoid spooking the market too much - after all the Fed's balance sheet should shrink before it expands again - Rosengren noted that the Federal Reserve should adopt balance sheet exit strategies "that reinforce the primacy of interest rate policy." The Boston Fed president said that while the FOMC is still carefully considering its balance sheet exit strategy, his ideal policy "would take a very gradual approach to balance sheet reduction."

"In my view that process could begin relatively soon, and should not significantly alter the FOMC's continuing gradual normalization of short-term interest rates," he said.

Rosengren added that by initially retiring only a small percentage of maturing securities, and then very gradually shrinking the volume of the securities being reinvested, "the tightening of short-term interest rates should not need to be much different than it would be in the absence of shrinking the balance sheet."

"Starting to shrink the balance sheet earlier – and doing so in a very gradual fashion – implies very little reduction in the degree of monetary stimulus coming from the U.S. central bank's balance sheet," Rosengren said.

"This, in turn, will allow policymakers to focus on gradual increases in the federal funds rate target as the primary mechanism for normalizing monetary policy and calibrating the economy."

But while Fed presidents warning about balance sheet reduction has been the norm in recent months, Rosengren's unexpected suggestion that a new QE is only a matter of time appears to have spooked stocks, which moments after he spoke, slumped to new intraday lows despite what was an otherwise cheerful speech.

Full speech can be found here.

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Uncle Sugar's picture

Cause crash. Buy for pennies on the dollar with free digits.  Rinse and repeat.

NidStyles's picture

Hmm, wonder why they won't let us know (((who))) it is that actually owns the Fed...

EmmittFitzhume's picture

The next bubble is not just the credit bubble. It will be the "full faith and credit" bubble. 

eclectic syncretist's picture

Translation: The federal reserve will illegally erase the debts of it's owners, and since you have been warned, there is nothing that you will do about it.

Arnold's picture

MBS will be first on the list, as unrecoverable debt.

A substantial non performing derivative in the Federal Reserve's' Balance Sheet.

Makes nice neat room for the next bunch of toxin and lays a fiscal president.

Life of Illusion's picture

 "quite likely" that the   use   ABUSE   of central bank balance sheets will be necessary



Hal n back's picture

we are already in a recession and perhaps it is a multi year depression already-if dgp was accurate.

Squid Viscous's picture

another fed kike says, what?

Arnold's picture

There are still toxic assets in portfolios?


bentaxle's picture

"Rosengren's unexpected suggestion that a new QE is only a matter of time appears to have spooked stocks, which moments after he spoke, slumped..."

Talk of QE causes stocks to slump....?

This is different.

BurningBetty's picture

These fucktards should start reading some history. You can't control this and you NEVER will. When humans think they are gods and can make models that will keep everything in place...that's when we get disasters. Hey, someone call F Mythbusters!

NidStyles's picture

It's not about control, it's about enslavement of the goys.

GreatUncle's picture

Agree economic slavery of the goys forever unless the $200 billion per month is divided equally between all.

What we have had is a decade of asset purchases being handed to the top and it will continue because if a million all clubbed together with an equal share the population now has power = wealth to fuck them off.

Bill of Rights's picture

No amount of QE, balance sheet or ABC funny stuff will sav e Brick and Mortar unless you start mailing out the checks.

MFL5591's picture

More free money that no one ever pays back.  This is an economy?

Peacefulwarrior's picture

Slump only to buy the dip into eventual new highs, throw a few Govenmnent defaults in the mix eventually and stocks and the roof will be on fire

BigFatUglyBubble's picture

"It's good to be the king (of the printing press)"

Mayer Amschel Coughschildmolester

BigFatUglyBubble's picture

Ctrl-P and buy all the things 4eva

khakuda's picture

If they hadn't encouraged ever more debt via ever lower rates, interest deductiblilty, etc thereby inflating prices beyond wages growth to the point that people can no longer afford the cost of living without debt, we wouldn't have had so much debt to begin with.  The exising debt burden and high cost of necessities like healthcare, education and housing is the source of the slow growth.

For good measure, they have starved savers of income for 8 years and worked their damnest to bankrupt pensions with low rates.  And they wonder why people worry about the future.

GreatUncle's picture

The debt is linked to Keynes and the now needed growth to support the debt.

The one trick pony of Keynes has run its course but without the money to pay it off it has to continue.

To the point in the end the CB's will throw populations under a bus to keep it all going.


Hemlock007's picture

The "Greatest Theft in History," will continue unabated by the financial elite enriching themselves on the backs of the many.  The elite get money for nothing and use it to perpetuate the Financial, Insurance, and Real Estate ponzi scheme which gets embedded deeper and deeper into the system.  Welfare, entertainment, and drugs dull the senses of the masses so they never realize they are the frog in the slowly boiling pot.  Once they are cooked the world will look like a true Hunger Games.  The French almost got away with this before the French Revolution; ignoring the masses.  But now the financial deep state manages to keep the masses at bay by dulling their senses.

steelhead23's picture

And please note - we are all prisoners - most just don't realize it.  If you take to the streets trying to change the game, you would die.  I know a lot of folks talk about revolution - or throwing the banksters in jail.  Let me tell you - them boyz is protected.  You haven't got a chance.  Oh - you say we'll fix this through the ballot box.  Man you're killing me.  If you hadn't noticed, the bastards own that too.  Now, be a good slave - and get back to work.

VWAndy's picture

 Straight up Bullshit. They would much rather carpet bomb the planet. jmo

GreatUncle's picture

Yep that is the end game when the risk of all fiat money collapsing and with it they would lose power they will go all in on the war scenario.

Morality to them is "they know better than you and they are always right".

VWAndy's picture

 Ah yes the circular logic of a bunch of crackheads.

south40_dreams's picture

And have some of that loot potentially reach the hands of a deplorable? Not a chance

Seasmoke's picture

Great. Is Gold over $2000 yet ????

wcvarones's picture

There's not really such a thing as balance sheet reduction.  Japan tried it and had to quickly blow the balance sheet back out again.

GreatUncle's picture

Balance sheet reduction is the CB intentionally created recession, seems to be what they intend now.

It will fail, the economy will contract, then to maintain profits under such a scenario jobs lost will only return through automation and robotics as cheaper cost options.

Recessions and tough economic conditions are the prime mover in uptaking newer increased efficiencies to "maintain" profits in a contracting economy.


buzzsaw99's picture

that there will be moar was never in doubt

GreatUncle's picture

Agree, none of them has a way to remove the asset purchases though.

They should really tell the truth and state there is no way to remove them and that this is going to be the modus operandi from now on.

Thing about that is populations are going to start asking for their cut at some point if the CB's just print for themselves.

Have you ever been handed any freshly printed $'s? Nope didn't think so!

Peacefulwarrior's picture

Many of the interesting Calculus guru's were hoping the inflated money supply would also inflate the value of Debt away. Somehow the Deflation symbol infilitrated their formula. Now there's a scramble to control any "real coffer's" that are left

roadhazard's picture

Yes and I didn't like them, they stick together.

roadhazard's picture

The populations cut will be a basic income.

actionjacksonbrownie's picture

What are they buying, and where are they getting the money to buy it?

wcvarones's picture

Everything, and out of thin air.

GreatUncle's picture

Since they went full on with FIAT from the 70's (AKA lose the gold standard).

Peacefulwarrior's picture

They will buy 4 day old fish if it helps plug a hole in the boat. They will collateralize with even stinkier old fish, throw your great great great grandchildren's future taxpayer earnings and any other pile of lama dung that can resemble collateral, park said assets/debt in a debt obligation under a SPV so we don't know what's in it, stamped by Moody's and lever up accordingly!

Davidduke2000's picture

balance sheet??? the crap they bought that nobody wanted but of course it cost then nothing to buy useless corporate bonds and failing mortgage papers, who the fuck are they kidding??? 

Gorgeous's picture

Agree.  Fail to see the "balance" in balance sheet.  Buying useless paper, that they can never sell, with money that does not exist, = = balance? 

hotrod's picture

UNLIMITED TAB.  Dont you wish you could party with the FED

farmboy's picture

Communism has won. The state will own all assets.

Lenin is cheering.

steelhead23's picture

Lenin is dead - and so is communism.  The game the Fed is playing is crony capitalism - and we ain't they're cronies.

jmack's picture

I have a feeling the FED rebalancing process involves a circular file cabinet.


   I got a look inside the fed...  http://tinyurl.com/mpl8wel

Don Diego's picture

"Rosengren"...another Irish Catholic at the Fed, what are the odds?

Turin Turambar's picture

Next?  Shouldn't they worry about the one we're currently in before projecting so far into the future?  /sarc


Gorgeous's picture

Dang, I didn't realize the PBOC contribution was so high. Seems like if they were to ever reduce that, due to, say, proposed import tariffs....we might have another sighting of Flipper, Flipper, faster than lightning....

Blankfuck's picture

OMG one of them Fed Fuckers spoke today! No worry Bubble Mania continues! Buy the fucking dip-----------OMG one of them Fed Fuckers spoke today! No worry Bubble Mania continues! Buy the fucking dip-----------OMG one of them Fed Fuckers spoke today! No worry Bubble Mania continues! Buy the fucking dip-----------OMG one of them Fed Fuckers spoke today! No worry Bubble Mania continues! Buy the fucking dip----------OMG one of them Fed Fuckers spoke today! No worry Bubble Mania continues! Buy the fucking dip------------OMG one of them Fed Fuckers spoke today! No worry Bubble Mania continues! Buy the fucking dip-----------

Iconoclast421's picture

Healthcare securities! Future rounds of QE will buy them by the trillion! Free money for Big Pharma. Scratch that. It's gonna be Yuuuuge Pharma after a few rounds of that.


Deductibles will be $25000 and monthly premiums will be $5000, but it will all be faked money, funded by healthcare securities which get bought up by the Fed. Everyone will be drowning in debt while Yuuuuge Pharma becomes even Yuuuuger.