A new Bank of America chart shows the Federal Reserve is buying fewer Treasurys and mortgage-backed securities.
Mark Cabana, who's one of the strategists behind the chart, contends it doesn't mean the Fed is stepping back from its aggressive policy to help financial system whether the coronavirus pandemic.
"What we have seen is that the Fed has really increased the pace of purchases in mid-March to address market functioning issues both in the Treasury and mortgage markets," the firm's head of US rates strategy told CNBC's "Trading Nation" on Tuesday. "Since the start of April, they've been tapering or reducing that pace of purchase to a rate that's now $10 billion a day in the Treasury market."
According to Cabana, one of the key questions is what happens next. He hopes to get answers at this week's Fed meeting.
"We think that the Fed will announce an intention to modestly slow the pace of purchases to about $7.5 billion a day or about $150 billion a month," he said. "We think they will indicate that they are planning to stick with this amount to support market functioning and also to try to provide stimulus for the economy."
He predicts the Fed will recognize economic conditions are still deteriorating, and signal interest rates will remain low for an extended period.
"The hard data has still been very, very tough to swallow, and I think most market participants know that the data is probably going to get a lot worse over the next few months," noted Cabana.
"The trough in the S&P 500 coincides with the date that the Fed announced they were going to be more active in the credit market — so, taking additional risk beyond what they had done during the financial crisis," Cabana said. "It seems like the Fed has kind of caught a falling knife, if you will, in financial markets, and since then, risk assets have been quite buoyed by that."