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While Wall Street consensus is calling for the Fed to remain on hold through December 2020, strategists at Credit Suisse warn the U.S. central bank may not even be on hold through the end of 2019.
The big picture: They're expecting the Fed to begin its fourth round of quantitative easing before the end of the year in an effort to settle problems in the repo market.
Why it matters: The Bank for International Settlements concluded recently that the spike in rates seen in the repo market in September was due to a structural problem rather than a one-off issue. Consensus is growing that the Fed's daily cash injections are not enough.
- Experts also warned earlier this year that the repo market issues were a sign of bigger trouble brewing in the broader market and could even cause a major selloff for U.S. stocks.
What they're saying: “The Fed’s liquidity operations have not been sufficient to relax the constraints banks will face in the upcoming year-end turn,” Zoltan Pozsar, managing director for investment strategy and research at Credit Suisse, said in the note.
- Pozsar argued in his note that a full-on imposition of quantitative easing will be needed as the end of the year is a time when the repo market typically sees low liquidity.