Fed Steps Into Repo Market to Control Soaring Rates Strains developed Monday in short-term financing markets that suggested the central bank could lose control of its benchmark federal-funds rate. The New York Fed said the effective fed-funds rate, or the midpoint of transactions in that overnight market, stood at 2.25%, up from 2.14% on Friday. That is at the top of the Fed’s target range for the rate, which is 2% to 2.25%. The transactions by the New York Fed are designed to keep the benchmark rate from trading outside of the target range. Before the New York Fed announced the moves, bids in the federal funds market on Tuesday morning reached as high as 5%, according to traders. The Fed’s rate-setting committee was set to begin a two-day meeting on Tuesday at which officials are likely to lower that range by a quarter-percentage point to cushion the economy from a broader global slowdown.The Federal Reserve Bank of New York said it would carry out up to $75 billion of transactions known as repurchase agreements on Tuesday to relieve funding pressure in overnight money markets.
Interesting stuff. https://en.m.wikipedia.org/wiki/Repurchase_agreement So the Fed is lending $75B today to help banks shore up. I wonder what they'll buy back the $75B back for. $100B?😂A repurchase agreement, also known as a repo, is a form of short-term borrowing, mainly in government securities. The dealer sells the underlying security to investors and buys them back shortly afterwards, usually the following day, at a slightly higher price.
When transacted by the Federal Open Market Committee of the Federal Reserve in open market operations, repurchase agreements add reserves to the banking system and then after a specified period of time withdraw them; reverse repos initially drain reserves and later add them back. This tool can also be used to stabilize interest rates, and the Federal Reserve has used it to adjust the Federal funds rate to match the target rate.
Yeah. When the effective rate goes from 2% to 5% overnight there's something up. I read Courage to Act. The two main themes in that book are (A) I was right all along and everyone who disagreed with me is a doodyhead and (B) We needed to do something right the fuck away or the economy would melt. "We're throwing $75b at this right the fuck now" is HBO biopic territory. That's pallets-of-cash-to-Baghdad shit.