Federal Reserve Weekly SOMA Update

The Fed is almost irrelevant at this point given that so much Treasury debt is outstanding. If the Fed lowers its Fed Funds rate, I’m not so sure that the 10-year doesn’t move higher immediately. A recession may temporarily cap the 10-year yield, but if the U.S. tries to spend its way out, the 10-year will only move higher. Meanwhile, Treasury Secretary Bessent will try to fund the current $2.0-2.5 Trillion deficit (and all Federal spending for that matter), with T-Bills. You can’t make this stuff up. Cut spending, and demand for the 10-Year will resume. Yet Washington has zero appetite for spending cuts. We are backing ourselves into such a corner. As I wrote recently, Social Security and Medicare/Medicaid are absolutely, positively going away sometime in the next 10-20 years. How can a $30 Trillion GDP economy possibly fund $40 Trillion (by October this year) in Treasury debt and another $70 Trillion in social benefits, especially when debt grows faster than GDP? It can’t. Selling a portion or all of the 640 million acres of land the U.S. owns across Alaska and the Western U.S. won’t cover the debt. Devaluing the Dollar as Trump and Vance are doing is not the answer. There is nothing “conservative” about this Administration’s fiscal policies. This is Biden 2.0.

• Treasuries: QT is over as far as Treasuries are concerned. Last week the Fed increased its Treasury holdings by $641 million. This week ended July 23rd the Fed held its Treasury position flat. The Fed’s Treasury position declined by $3.9 billion on a rolling 4-week basis.

• Agencies: The Fed’s Government Agency security holdings decreased by $3.6 billion for the week-ended July 23rd. The Fed’s Government Agency holdings decreased by $3.7 billion on a rolling 4-week basis.

• The Fed’s balance sheet holdings: https://www.newyorkfed.org/markets/soma-holdings

• Our Excel spreadsheet tracks the Fed’s SOMA activity since 2022. It may be accessed below the paywall.

Source: TEK2day Holdings; Federal Reserve data.