Pimco is probably feeling pretty big and bad with its nearly $1.7 trillion portfolio made up mostly of bonds. But the biggest and worst player in the fixed income space is undoubtedly the Federal Reserve’s open market account.
Managed by the NY Fed, the SOMA system owns nearly $8 trillion in bonds, including government bonds, linkers, mortgage-backed securities and even some corporate bonds, after experiencing a gargantuan spending spree over the past decade.
And today SOMA got a new top dog:
NEW YORK – The Federal Reserve Bank of New York announced today that Roberto Perli has been appointed Manager of the System Open Market Account (SOMA) and Julie Remache has been appointed Deputy SOMA Manager. In these roles, Mr. Perli and Ms. Remache are senior executives in the New York Fed’s Markets Group. They will take up their new positions on February 21, 2023. The Federal Open Market Committee (FOMC) approved their picks during its meeting this week.
“Roberto brings a deep understanding of monetary policy and financial markets and a strong commitment to public service,” said John C. Williams, president and chief executive officer of the New York Fed and vice chairman of the FOMC. “I am pleased to welcome Roberto to the bank and Julie to her new role, and I look forward to working with them in fulfilling the Federal Reserve’s mission.”
When it comes to macroeconomic and monetary policy analysis, there aren’t many better than Perli. As Neil Irwin of Axios says, he is one of the best Fed analysts. FT Alphaville has been enjoying its research for almost a decade. He’s also somewhat active on Twitter, which I hope will continue (but probably not).
Perli is currently head of global policy at Piper Sandler, having bought his company, Cornerstone Macro, which he founded in 2015 with fellow Fedwatcher Nancy Lazar, among others. Prior to that, he was with ISI — the research institute now part of Evercore, not Pakistani intelligence — on the staff of the Fed’s Board of Governors, and an economics professor at the University of Pennsylvania.
To your delight, here’s an interview Perli did with occasional Alphaville blogger Mark Sobel last fall about the Fed:
All in all, given the unique responsibilities of the NY Fed in general and SOMA in particular, we wonder if there aren’t better candidates for the job.
The Fed is not short of big macro brains (throw a rock in the Marriner-Eccles building and chances are you’ll earn a Ph.D. in economics). And the NY Fed has historically been the Fed’s eye and ear in financial markets. Nowhere is this more true than for SOMA.
It’s the department that manages the Fed’s foreign exchange reserves and the bonds purchased as part of quantitative easing, and actually implements the Washington-based board’s rate decisions. If the monetary generals are in DC, then SOMA are the marines who have to get the job done and hold the territory against the “wild hogs” of finance.
It’s odd, then, that the New York Fed should once again appoint someone with what appears to be limited market knowledge to manage the world’s largest bond portfolio.
We’re not talking about trading STRIPs at Salomon at the time, or running hard yards to manage duration risk on a pension plan’s bond portfolio. But Perli’s entire career has been spent in places not directly related to markets.
Perli is clearly a monetary policymaker and not a labor econometrics, which is useful. But economists often seem to get more “feel” for the markets after spending time with a money manager.
And the New York Fed has been a little nervous about rumors from inside the financial system in recent years – most notably the repo market riots of 2019. New York Fed President John Williams himself is very much the classic one Type of intellectual academic economist.
Luckily, Perli’s new deputy will be Julie Remache, who, although a Fed staffer (apart from a very brief stint at Robeco), has spent most of her career since 2000 in market-oriented roles at the central bank. She is currently Head of Market and Portfolio Analysis at the NY Fed’s Markets Group.
Additionally, Perli’s predecessors, Lorie Logan, Simon Potter, and Bill Dudley, didn’t exactly have hands-on market experience when they took the job either (although Dudley probably caught some of the “feel” when he was Goldman Sachs’ US chief economist). .
So what’s Perli’s stance on the Fed’s balance sheet? Well, a year ago he told the FT that “when the economy is doing so well, it becomes difficult to justify why the Fed has such a large balance sheet.” It’s a little smaller now.
But in October, in one of his final tweets before falling silent (presumably as the SOMA job process began), he hinted that the pace of balance sheet shrinkage could eventually cause problems for the Treasury market, while acknowledging that the Fed might They are more likely to pan out due to the economy slump than USTs have a sizzling fit.
A little more color around @jeannasmialek’s tweet.
The point was to say that we are not close to a Treasury market dysfunction becoming a constraint on #Fed policy. Even if reserves continue to decline at the current rate, it will still be at least 7 months before problems arise. 1/3 https://t.co/DVPoDZclhw
— Roberto Perli (@R_Perli) October 4, 2022
For those counting, that means April-May could be when things could come. . . spicy.
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