Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $10B AUM, offering volatility management solutions to its investor base worldwide. Mike has been publishing his daily newsletter (Monday-Friday) privately for the firm’s investors and his personal contacts in the investment business
since 2008, sending it daily shortly after the market close.
The opinions expressed below are my own
Fed day! Usually an announcement of Fed policy, results in some volatility. Not today.
When the Fed announces a *change
* in Fed policy, usually the market really moves around. Not today. To be fair, the Fed didn’t surprise the market *with respect to balance sheet reduction.
* They surprised on their rate forecasts and their willingness to alter the balance sheet plan.With respect to the balance sheet reduction, here’s what the Fed said they would do:
- The Fed is going to run off $10 billion per month starting in October
o $6 billion of Treasury principal/$4 billion of Mortgage-backed principal
o this is very small and intends to not ruffle any of the market’s feathers.
- The size will climb to $50 billion per month eventually
o $30 billion Treasury/$20 billion Mortgage mix
- Size will increase every 3 months until it gets to $50
o 5 quarters to get to the max
So this is very gentle balance sheet reduction. They don’t want to shake up markets and this certainly won’t. It makes sense that this part of the Fed decision wouldn’t move the tape much.
With respect to rate changes and altering things as we go,
here’s what they said:
- Rates were left unchanged today
o As widely expected