SPECIAL REPORT: Did The Fed Just Announce QE-Lite? | Axel Merk + Live Q&A

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**Adam Taggart** (1:01)
And we should be live. Welcome to Thoughtful Money. I'm Thoughtful Money founder and your host, Adam Taggart. Thank you for joining us here for one of our regular post FOMC live streams to make sense of what the Federal Reserve just announced and what Fed Chair Jerome Powell discussed at his press conference. I am joined as usual by Axel Merk, head of Merk Investments and longtime Fed watcher. I consider him to be a Fed expert. Axel, thank you so much for joining us again.

**Axel Merk** (1:31)
Great to be with you. We can say that offline, we managed to blame the Federal Reserve even for your tooth trouble.

**Adam Taggart** (1:38)
Thank you. A couple of things, folks. One, Axel kindly dressed up for me here, so give him props in the live chat there. Yes, I won't go into it today. I probably will over this weekend's update. But yes, this is the first time I've been on camera on this channel after having lost a tooth this past weekend. Not fun. I'm not going to reveal which tooth it was. I may talk a little bit more restrained, so you can't see it because it is visible. But anyways, we'll worry about that for later days. I'll also apologize too, in my home studio here, since it's my first winter in it, I'm realizing that there's some winter sun glare issues that I'm trying to deal with but I clearly haven't solved yet. So bear with me while hopefully in a couple of minutes that glare goes away. But anyways, Axel, it's starting to get interesting here at the Fed, at these post FOMC meetings. The Fed did cut my 25 basis points as the market was pretty confident it was going to. But there were three descents to that decision, which I believe is the most descents the FOMC has experienced since 1988 So a good long while.
Almost 40 years, I guess, if I'm doing my math right. And here's the key question I have for you, Axel. I don't want to be misinterpreting this too hyperbolically. But the Fed did announce that they will be initiating purchases of basically T-bills going forward to the tune of about 40 billion a month, for at least the next couple of months. And they said, well, this is nothing out of the ordinary. This is just to maintain an ample supply of reserves. Is this true? Is this just sort of business as usual stuff? Or is this kind of like foaming the runway? Is this like a QE light that is sort of getting everybody accommodated so that the Fed really wants to start growing its balance sheet at scale? It can do so.

**Axel Merk** (3:44)
All of the above.
So, Powell really doesn't mean to do QE, but he kind of has to because they have this ample reserve regime where they take down the balance sheet, they don't quite know what the limit is. At some point, you start having some tension in the system, and then they foamed the runway, which means they add liquidity. And that's ultimately what the market, I believe, has reacted to. Powell may not want to do this as a quote-unquote policy tool, but of course it is. I mean, the market doesn't care what Powell says. The market cares what Powell does in that sense when it comes to QE. And so, yes, they are initiating QE. They don't mean to do it to ease, but that's what it is. And they need to do it because they have this ample reserve regime. And just for folks who are not so much into those details, the Federal Reserve used to set interest rates until the financial crisis through interventions by the New York Fed. And they were buying and selling, withdrawing liquidity, adding liquidity. And then at some point, Bernanke said, hey, let's make this much easier. We can just pay interest on reserves. And that required an act of Congress because that wasn't permissible before. And ever since then, the New York Fed definitely, and I've talked to several people there, they very much prefer it. They consider the previous method outdated. They say it only causes problems. You have a lot of stress for no advantage.