Pimco is probably feeling pretty big and bad with its nearly $1.7 billion mostly bond portfolio. But the biggest and worst performer in fixed income is arguably the Federal Reserve’s System Open Market Account.
The New York Fed-run SOMA system holds nearly $8 billion in bonds, across Treasuries, bonds, mortgage-backed securities and even some corporate debt, after making a huge buying frenzy over the last decade.
And today, SOMA just got a new top dog:
NEW YORK — The Federal Reserve Bank of New York today announced that Roberto Perli has been named director of the System Open Market Account (SOMA) and Julie Remache has been named deputy director of SOMA. 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 selections at 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, New York Fed President and Chief Executive Officer and FOMC Vice Chairman. “I am delighted to welcome Roberto to the Bank and Julie to her new role, and I look forward to working with them in achieving the Federal Reserve’s mission.”
When it comes to macroeconomic and monetary policy analysis, it doesn’t get much better than Perli. As Neil Irwin of Axios says, he is one of top fed analysts. FT Alphaville has enjoyed its research for the better part of a decade. He is also reasonably active on Twitterwhich hopefully will continue (probably not though).
Perli is currently head of global policy at Piper Sandler after buying her company Cornerstone Macro, which he founded in 2015 with fellow Fedwatcher Nancy Lazar, among others. Before that, he was at ISI – the research workshop that is now part of Evercore, not Pakistani intelligence – served on the staff of the Fed Board of Governors and was a professor of economics at the University of Pennsylvania.
For your viewing pleasure, here’s an interview Perli did with occasional Alphaville blogger Mark Sobel about the Fed last fall:
That said, we wonder if there weren’t better candidates for this position, given the unique responsibilities of the New York Fed in general, and SOMA in particular.
The Fed isn’t short of Big Macro Brains (throw a rock inside the Marriner Eccles building and there’s a good chance you’ll land a Ph.D. in economics). And the New York Fed has always been the eyes and ears of the US central bank in financial markets. Nowhere is this truer than for SOMA.
This is the division that manages the Fed’s foreign exchange reserves and bonds purchased under quantitative easing, and it implements the interest rate decisions of the Washington-based board of directors. If the generals of monetary policy are in DC, then the SOMAs are the marines who get things done and must hold the territory against the “wild hogs” of finance.
So it’s odd that the New York Fed is once again appointing someone who appears to have limited market experience to manage the world’s largest bond portfolio.
We’re not talking about having traded STRIPs at Salomon at the time, or making efforts to manage the duration risk of a pension plan’s bond portfolio. But Perli’s entire career has been in places not directly involved in the markets.
Perli is clearly a monetary policy expert, rather than a labor market econometrician, which is helpful. But economists often seem to have more “feel” for the markets when they’ve spent time at a top-tier asset manager or investment bank.
And the New York Fed has in recent years been a little on the ears when it comes to whispers from inside the financial system – especially around the 2019 repo market ructions. NY Fed Chairman John Williams himself, is very much the classic type of cerebral academic economist.
Fortunately, Perli’s new assistant will be Julie Remache, who, despite being a Fed lifer (apart from a very brief stint at Robeco), has worked most of her career since 2000 on markets at the central bank. She is currently responsible for market and portfolio analysis in the New York Fed’s Markets Group.
Also, Perli’s predecessors, Lorie Logan, Simon Potter and Bill Dudley, didn’t really have much hands-on experience in the markets when they took the job (although Dudley probably got some of the “feel when he was chief US economist at Goldman Sachs). .
So what is Perli’s position on the Fed’s balance sheet? Well, a year ago he told the FT that “it’s getting hard to justify why the Fed is holding such a large balance sheet if the economy is doing so well”. He is now a little smaller.
But in October, in one of his last tweets before going silent (presumably at the start of the SOMA work process), he suggested that the pace of balance sheet contraction could at some point cause problems for the Treasury market. , while acknowledging that the Fed is more likely to pivot due to the falling economy than the UST having a nervous breakdown.
A little more color around @jeannasmialek Tweeter.
It was a question of saying that we are not close to the dysfunction of the Treasury market becoming a constraint for #Feed Politics. Even if reserves continue to decline at the recent rate, it will still take 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 is when things could get really bad. . . spicy.