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Joseph Wang & William White: Mammoth Interest Rate Hikes Are Causing Trouble In Sovereign Debt
Forward Guidance
What's Going on With the Federal Reserve?
The Federal Reserve and central banks are sustaining huge losses. Most of their assets are longer-duration fixed-term assets like mortgage-backed securities and treasuries. When the Fed hikes rates, then the interest rate payments on those liabilities, they go higher. The good thing is that the Fed doesn't have to mark the market, so they just hold it so you never actually realize those losses. All that money that they're paying out to the banks and to the reverse repo facility, that's going to be printed.
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