Maintenance Pace

Think of it this way

It is the difference between topping up the engine oil and stepping on the gas. Both keep the car running, but only one makes it go faster.

What is Maintenance Pace?

How much the Fed's BILL portfolio has grown in four weeks. It is drawn next to the total pace to separate two things that size alone blurs: buying long-term debt to make credit cheaper, which is QE, and buying bills so that bank reserves do not become scarce while currency in circulation and the Treasury account grow, which is maintenance.

How to read Maintenance Pace

Gray bar next to the total pace bar. When the two match, all the growth is bills and the Fed is maintaining, not stimulating. When the total bar sticks out, the difference is in long maturities, and that is QE. The history separates the episodes unambiguously: the first QE moved 298 billion in long-term debt and zero bills; COVID, 1,528 in long-term debt; the 2019 episode that the Fed insisted was not QE was 80% bills. Lag: none; money is created on the same day.

What Maintenance Pace means for the market

It is the signal that separates a central bank keeping the machinery running from one stepping on the gas. Markets react differently to each, and in 2019 much of the debate was exactly this: whether those purchases counted as stimulus or not.

Where the money flows

Just like any purchase: the Fed pays with new money and the security goes onto its balance sheet. The difference from QE is not in the path the money takes but in the maturity of what it buys, and therefore in which interest rate it ends up moving.

What to watch in Maintenance Pace

When the total pace turns positive, look at this bar before talking about QE. If it explains all of it, it is not QE.

The part of the pace that is short-term bills, not stimulus.