Fed Adds $77.09 Billion to Markets as Powell Affirms Liquidity Operation -- 3rd Update
November 13 2019 - 1:40PM
Dow Jones News
By Michael S. Derby
The New York Fed added $77.09 billion in liquidity to financial
markets on Wednesday, on a day where the U.S. central bank leader
again affirmed that the operation and ones like it don't have any
implications for the broader economy.
The intervention came by way of an overnight repurchase
agreement operation. Eligible banks offered the New York Fed $67.84
billion in Treasurys and $9.25 billion in mortgage-backed
securities, and the central bank accepted all of it.
Fed repo interventions take in Treasury and mortgage securities
from eligible banks in what is effectively a short-term loan of
central-bank cash, collateralized by the bonds.
The Fed's market interventions are aimed at ensuring that the
financial system has enough liquidity and that short-term borrowing
rates remain well-behaved, with the central bank's federal-fund
rate staying within the 1.5% to 1.75% target range. The effective
fed-funds rate stood at 1.55% on Tuesday. The broad general
collateral rate for repo trading stood at 1.54%, also for
Tuesday.
The Fed's interventions, which began in large size in
mid-September, aren't designed to serve as stimulus. The temporary
operations have kept short-term rates largely in line with central
bank goals, after spiking unexpectedly in September.
While the sizes of recent operations are large, the practice of
adding and subtracting liquidity from short-term markets to manage
short-term interest rates goes back decades. The Fed hopes the
large temporary operations won't be needed after January.
Federal Reserve Chairman Jerome Powell told Congress Wednesday
the Fed is still studying what caused short-term rates to spike in
September. He also said that as of now, what the Fed is doing to
keep markets calm is "technical" and "I think we have it under
control." Mr. Powell also said the issue around money-market rates
"doesn't really have any implications for the economy or the
general public."
The Fed is also buying Treasury bills to increase the size of
its balance sheet and to add permanent liquidity to the financial
system, and it hopes that effort will reduce the need for large
temporary interventions.
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
November 13, 2019 13:25 ET (18:25 GMT)
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