YouSaid · the spoken record

Joe Abate

lines on the record: 28
first: 2025-10-03
most recent: 2025-10-03
sittings or episodes: 1
sources: podcast

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“I don't want to call it bond vigilanteism because I don't think that's what's going on, but there is a realization that fiscal policy is moving in presumably an unsustainable direction.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“So, I'm not an expert on swap spreads, but I will say is that there's a general global theme about fiscal prudence, if you will, and that the amount of government debt outstanding is increasing and doesn't seem to be going anywhere but up. The result of that is that people demand a premium for holding that government debt. And that's what we're seeing here, which is that that premium has started to rise. Now, initially in the US, the sense was that after the, certainly in April of this year, that premium was expected to be higher. But I think what happened in the US was that people recognized that The deterioration in the fiscal outlook was not a unique US phenomena, right? It was occurring across the board, certainly in the countries among the countries that you were mentioning. So I think there's a”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“Can get hard partly because of anti fraud and other mechanisms. If you use a stablecoin, that might be easier, but the problem, of course, is that a stablecoin used in that way is just like using money, right, or paper money, right? Once it's gone. You can't call your credit card company and say, stop that payment.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“So, you're part of the exception rather than the rule. But my point being that a payment token probably, the demand for it may be higher outside the U.S. than inside the US because you have lots of ways of making fast payments, where it might be more attractive is in underbanked economies that are able to access mobile phones. And so all things being equal, you could say it is a substitute for the $100 bill as a store of value and a unit of account. And in that case, then you could potentially see strong demand for payment tokens, but they would be located outside the US. The other area would be with respect to remittances. So sending money abroad. Again, much easier to do with a payment token. Making purchases theoretically using your credit card in a non-US currency. Sometimes.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“Deposits. Credit cards and paper currency. So my sense, at least from looking at this and having thought about it somewhat, is I think of the payment tokens as a closer substitute for currency than a Then a bank deposit If you think about currency generally, there's, I think, the average on-person currency amount is about $60. But per capita currency in the US is something like seven thousand dollars or more. So there's a significant volume of US currency that's held Some estimates between five eighths, five eighths of US currencies held offshore. There are nineteen billion hundred dollars bills out there.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“You need a new large buyer of Treasury bills, right? That buyer theoretically could be stable coins or at least a payment token of some sort. The problem, of course, is that when the demand for payment tokens goes up, it's taking away from the demand. Other instruments that people use for making payments.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“So, the idea behind the stablecoins as a payment mechanism Right, that they look similar to a money market fund and because they're similar in structure to a money market fund, the idea is that they would have to buy short-duration assets, right? They'd have to buy Treasury Repo, they'd have to buy Treasury bills. So the goal or the intent is that if demand for stable coins goes up, the demand for bills will go up, and therefore the Treasury will find a new buyer for treasury bills, and it could issue more treasury bills without pushing interest rates up, right? Increase bill supply but reduce the supply of term debt in order to keep term interest rates from rising and”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“reserves and the treasury's account. Now what's happening is that there's nothing left in the RRP program and as the balance sheet shrinks further it comes out of reserves. As it comes out of reserves the effect is kind of disproportionate, if you will. Most of the reserve loss that we've seen has come from foreign banks. Foreign banks are the ones who are trading in the Fed funds market. So their cost of liquidity is going up right their bargaining power in this Negotiation has deteriorated and they have to pay an extra basis point. And that's what we've seen in recent days.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, I totally agree with that. So reserves may be ample at the moment, but their price is going up because the amount of that ampleness is getting smaller and smaller. There are a variety of reasons why it's getting smaller and smaller. One of them is Qt, the other was the resolution of the debt ceiling, which encouraged the Treasury to kind of target a higher cash balance for precautionary reasons. There was a speech recently by Hunter McMaster about what the Treasury's cash balance target or goal or desired level is, which is five to seven days of expected outflows, and so they want to maintain an ample balance in their checking account. But the Charter's checking account is held at the Federal Reserve, and that acts as a liability for the Fed, so it drains reserves as the balance goes up. So all of these factors have kind of been moving. And up until now, most of the decline in the Fed's balance sheet has shown up as a shift out of the reverse repo program, which is meant to mop up X.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, I think that's partly true. I think that That was originally the reason why they had a band around the target, because they weren't sure in 2008 that they could achieve that. In the subsequent years, yes, they've kind of eliminated the fine-tuning that they would need to do to get the Fed funds rate to the target.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm going to say no. I think that the reason there's no trading in the Fed funds market, partly, as I said earlier, is that because it's a Roman lake of sorts, it's kind of a negotiated interest rate. It's not really a traded rate.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“Mechanically, there have been, certainly in my career, the Fed has Targeted the Fed funds rate for the entire period of time, but the way it communicates what its targeting has changed. So when I started, the Fed used to do daily operations and what kind of daily liquidity operation there were fine distinctions between them that would indicate how much the Fed was expecting the Fed funds rate to move up or down. Then in 94, you know, they basically came out and said that we're going to target the rate itself And then after that, in I think it was 95, they actually started publishing the target rate in the FOMC minutes.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“So, the short answer to that is I don't know. What I would say is that my sense is that it's probably sooner than people think. Lori Logan has given her past career at the New York Fed and the Soma or the implementation desk at the Fed probably has a lot of weight in terms of how the mechanics of monetary policy run. As far as the other members of the FOMC, I'm not sure what their opinions are because nobody's really discussed this in the past. So I would say that probably sooner rather than later, but something that's not going to happen, you know, let's say within the next two years.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“And because of that, you basically have two different equilibria in the market. You have a tripartite equilibrium, and then you have a sofer bilateral equilibrium. And what Lori Logan was arguing is that that creates kind of a bifurcated distribution where the incentives to trade in one market may not be the same as in the other more smaller triparty market. The result is that you may be Looking at an average or a volume weighted median across all of these markets, that doesn't actually reflect what's going on in the market”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“That's right. I think the main distinction is because the triparty rate or the triparty market itself is a pure financing market. It's the market in which the dealer community is raising cash from cash providers like money market funds. By contrast, sofer is a little bit broader because it includes the bilateral repo market and because it includes the bilateral repo market, that's more of a market where people are looking for financing as well as specific QSIPs or specific treasury securities. So they may have the left shoe, but they're looking for the right shoe.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“I do. I actually remember even earlier than that where there was work done about who was benefiting from the liquidity programs and the financial crisis. And there were, in fact, some news agencies filing Freedom of Information Act requests to find out exactly who used what facility and how much.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“At the same time, the cash on their balance sheet was crowding out, their fixed amount of capital, right? So you were basically holding more cash than you wanted to, and you were rolling it into securities because loan demand wasn't there. And so you had a balance sheet that became more heavily skewed toward, this is the banks, skewed toward treasuries. Lots of cash and more flight prone liabilities. So when the Fed began raising interest rates, everything became unglued or became more volatile.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“In price, you have an incentive to hold more than you probably need. So from an efficiency argument, you might argue that banks, because they've been oversupplied with bank reserves, their demand for those reserves is excessive, and they should be holding kind of more treasuries and other assets. The other example of this is if you have a bloated Federal Reserve balance sheet, right, during, for example, QE, you create other sorts of distortions in the market. So during QE, what we saw was that bank demand for loans or loan demand was weak, right? And the Fed was pushing all these reserves into the system. Banks ended up with lots and lots of deposits. These deposits were uninsured, right? And they were very rate sensitive so that when the Fed began raising interest rates, that cash left very quickly. As in March of 23.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“So I agree with you. I'm personally not opposed to a big balance sheet. I would argue that having plenty of reserves in the system increases the safety of banks, right? They have more liquidity. That particular type of liquidity is immediately available, right? Because bank reserves can be accessed immediately, whereas monetizing treasuries requires either repoing them, going to the discount window or selling them in the market. Ample is probably where you should be targeting. An inefficient balance sheet would be one where you could argue that banks are overstocked with reserves. And because they're overstocked with reserves, the cost of those reserves for them is low. And anything that's low.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“You would get not only the communications element, but you'd also get a feedback on how well the Fed is doing in managing liquidity. Now, if reserves are always abundant, I don't really need that information, right? I know that reserves are abundant, but if I want to run an efficient balance sheet for the Fed, in other words, one that's not any larger than it needs to be to control interest rates, then I have to kind of bring down the level of reserves in the system and monitor as I bring down the level of reserves what's happening with liquidity in the overall system. Is it, as you said, is it staying within the bands or is it moving outside those bands and creating other sorts of distortions? And that's why I need hopefully a market traded instrument. And that would be, in this case, the repo rate.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“It was a little bit of a surprise since we didn't really think that the Fed was preparing to actually change policy rates. The overall reason for why they might have to move away from a Fed funds target are pretty well known. So again, as I described, the Fed funds market earlier, right? You've got one set of borrowers, one set of lenders, it's become kind of a Roman lake, right? The provinces around the Mediterranean all spoke Latin. So in effect, right, there's not a lot of activity going on between the Fed funds market or the reason to borrow. So it just becomes a communications device. So if you move to a different barometer, let's say a triparty repo rate, we can go into details about what exactly that means.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“And one way to think about this is that All of these term interest rates tenure yields, etc are all a reflection of what your expected path of the Fed is. defined as fed funds plus some premium right to reflect the term risk that you're taking or inflation risk, etc. And therefore, there's a linkage between the overnight rates, the communication of policy, and how it's transmitted to the broader financial market system.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“So, the reason you think care about the plumbing Is that the Fed uses it to communicate its policy intentions? So it needs some sort of barometer, some sort of measure for the market to be able to interpret what the Fed's intentions are. So there's a twofold implication, if you will, for the Fed funds market. One is the Fed uses the Fed funds rate to communicate its policy intentions. So raising rates, lowering rates. And it uses the dot plot, for example, defined as the Fed funds rate to provide forward guidance, to tell the market how far we're going or what we see as the end game potentially for interest rates. And the second element is kind of more of a mechanical one, which you're referring to as the plumbing. Which is how does the Fed's intentions get translated into bank deposit rates, mortgage rates, etc.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“Interest on reserves. Okay. Reserve balances. And that spread has been very, very stable for the last probably four years or so at minus seven basis points because the Fed's been operating in an abundant reserve regime. The abundant reserve regime first came about because of QE, right? So you expanded the Fed's balance sheet, created all these reserves so banks were overstuffed with liquidity.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“Because there were plenty Exactly. So the market kind of devolved into basically an interest rate arbitrage. You have one set of borrowers and one set of lenders. The borrowers in this market are generally non-US banks and the lenders are the home loan banks. And the reason there's this distinction is because the home loan banks can't earn interest on their cash balances at the Fed. So they have an incentive to sell their cash into the Fed funds market to non-US banks who are simply making the spread between Fed funds and IORB. And in an ample reserve.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“It adapts. And as it adapted, what happened was banks stopped trading in the Fed funds market. They didn't need to borrow reserves anymore.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“Between an upper and lower band where it set the target, and originally it set the target range band because it wasn't confident that this new structure would keep the Fed funds rate close to a pinpoint level. But if you supply an abundant level of reserves into the system, what happens is the Fed funds market changes fundamentally.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source
“So, originally, the Fed started with a scarce reserve regime, and the idea was that the level of liquidity in the system was always kept a little bit short of what banks really wanted to hold. And that created a little bit of torque in this interbank market, the Fed funds market, and that allowed the Fed to move the Fed funds rate to exactly where it wanted to set the target, and the target was set at a pinpoint level of interest rates. Over time, and certainly beginning in about 2008, the Fed shifted to a different format. And in that format, the Fed would supply an ample or abundant level of reserves and let the Fed funds rate trade or, at least in this case, not trade at some spread or band.”
2025-10-03 · Odd Lots · Lots More with Joe Abate on the Fed's New Target and the Rising Price of Money · IDENTIFIED FROM THE TRANSCRIPT · source