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The Fed announced “additional funding” on March 12 to backstop the banking sector. As a result of the announcement, the crypto market cap rose to pre-crisis levels - triggering a wave of bullishness.
JPMorgan Chase & Co in a note said that the Federal Reserve’s emergency loan support, Bank Term Funding Program, can put in as much as $2 trillion of liquidity into the US banking system to help the struggling banks and ease the liquidity crunch.
Quantitative easing (QE) is back
The Fed’s Bank Term Funding Program (BTFP) will offer financial institutions loans of up to one year to the par value of assets held. It will provide additional liquidity “against high-quality securities,” thus removing the push to force sell said securities.
“This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy.”
Founder of Custodia Bank Caitlin Long — having been through the BTFP term sheet — pointed out the program’s generosity, including non-U.S. banks being eligible, the par asset value being offered, no fees, no prepayment penalties, and a $25 billion “exchange stabilization” fund.
Commenters raised concerns that the U.S. taxpayer is on the hook for this program. Others said individuals do not receive similar open-handed treatment on personal debt.
Consequence of 2T Injection?
With up to 2T to be injected into the economy, some are saying is equivalent to Quantitative Easing (QE) and could result in a further devaluation of the dollar and continued spirling of inflation.
2Trillion in New Money injected into the Economy will only dilute the Dollar’s value, and spur inflation, not head it off! We are going to see a spiraling inflation! Coupled With growing Deficits & debts it’s a consumer nightmare! https://t.co/GgxaDVbC0S
— Dave Wallace (@DaveWallaceUS) March 16, 2023
Will the Feds Hike Interest rates (again)?
With two bank collapses in less than a week, all eyes are on Federal Reserve on whether it would hike the interest rates one more time (on March 22).
Fed Chair Jerome Powell and his colleagues are in a tight position on how to react in these times of turmoil, especially now after the fresh troubles at the Swiss banking giant, Credit Suisse.
Last week, Powell signaled that the central bank might accelerate its interest-rate-hike campaign in the face of persistent inflation. However, this was before the collapse of crypto-friendly banks and the creation of The Fed’s Bank Term Funding Program (BTFP).
According to a strong majority of economists polled by Reuters, The U.S. Federal Reserve will raise interest rates by 25 basis points on March 22.
