Fed Adds $103.65 Billion to Financial System
November 21 2019 - 11:28AM
Dow Jones News
By Michael S. Derby
The Federal Reserve Bank of New York added $103.65 billion in
temporary liquidity to the financial system on Thursday.
The intervention came via overnight repurchase agreements, or
repos, that totaled $74.45 billion, and via 14-day repos totaling
$29.2 billion. The Fed took all the securities offered to it by
eligible banks.
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 securities.
The Fed's 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 Wednesday. The broad general
collateral rate for repo trading stood at 1.53%, also for
Wednesday.
The Fed has been intervening in markets in the current fashion
since mid-September, when short-term rates unexpectedly shot up on
a confluence of factors. Since then, money-market rates have been
well behaved.
The Fed is using temporary operations to tamp down on any
possible volatility, while purchasing Treasury bills to build up
reserves in the banking system. It hopes that by buying Treasury
bills it will be able to cut back on repo interventions at the
start of next year.
Minutes that detailed the proceedings of two Fed meetings in
October showed that officials were still working on a more enduring
solution to ensure markets have enough liquidity to prevent
unwanted swings in short-term rate markets.
Central-bank staffers laid out two options for officials to
follow. One entails pressing forward with regular, modest sized
temporary repo operations for well into the future. The other sees
the Fed launching what most refer to as a standing repo facility
that would allow eligible banks to quickly hand Treasurys to the
Fed in exchange for money, in a tool that is designed to cap
short-term rate movements. The meeting minutes didn't show
officials coming to any decisions.
The meeting minutes also showed that in an Oct. 4
videoconference held by Fed officials, most officials supported an
immediate announcement of Treasury bill purchases and didn't want
to wait until the formal Oct. 29-30 Federal Open Market Committee
meeting. They worried that if they delayed the news it would be
harder to drive home the point that the bill purchases were an
entirely technical effort to bolster reserves, with no monetary
policy implications.
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
November 21, 2019 11:13 ET (16:13 GMT)
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