Navigating Volatility: The Ripple Effect of Shadow QE on Markets

Hey there, folks! Let’s dive into the confusing world of finance and take a closer look at how the actions of the Federal Reserve are shaking things up. Remember when they said inflation was just a temporary blip? Well, things took an unexpected turn when a war broke out, sending inflation soaring and forcing the Fed to hike rates aggressively. This sudden move led to a sharply inverted yield curve, and boy, did that cause chaos in the banking system, especially for smaller banks.

The Surprising Twist

You see, many banks weren’t prepared for such a rapid rise in interest rates. The problem was, they had a bunch of treasuries on their books, which suddenly turned into paper losses. As customers could now earn real interest by taking their cash out, banks had to sell their treasuries at a loss. And that’s when Silicon Valley Bank took a tumble. Ouch!

Enter the New Program

So, to counter the fallout and save the day, the Federal Reserve introduced a new program. It’s kind of a hush-hush deal, not talked about much, but it’s propping up the market. Here’s the scoop: banks can now get a one-year loan instead of selling their treasuries at a loss. It’s like a new form of quantitative easing (QE) on the down-low. More money is pumped into the system through this program, giving it a little boost.

The Potential Stickiness of Inflation

Now, here’s the big question mark. Does this new program make inflation stickier? Will interest rates need to stay higher for a longer time because of it? It’s a tough call, my friends. The Federal Reserve will need to keep a close eye on things and carefully weigh the consequences. After all, the last thing we want is to prolong the agony of high inflation and interest rates.


The Bank Term Funding Program (BTFP) is the Federal Reserve’s secret weapon to stabilize the market and help struggling banks. While it may not be widely discussed, it’s playing a significant role behind the scenes. But remember, keep your eye on the ball—watch how this new program affects inflation and interest rates. By staying informed and understanding the moving parts, you’ll be better equipped to navigate the choppy waters of today’s volatile market.

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