By Michael S. Derby 

The Federal Reserve Bank of New York executed a $49.6 billion overnight liquidity operation Monday that moderately reduced the overall amount of temporary money the central bank has injected into short-term financial markets.

The Fed's repurchase agreement operation, or repo, added nearly $50 billion, as dealers submitted to the Fed $25.5 billion in Treasurys and $23.1 billion in mortgages. Because of the expiration of past interventions, the overall amount of liquidity added by the Fed Monday declined $5.7 billion to $181.6 billion.

Fed repo interventions take in Treasurys, agency and mortgage bonds from eligible banks in what is effectively a short-term loan of central-bank cash, collateralized by the securities. The banks tapping this cash -- they are called primary dealers -- are limited in the amount of liquidity they can take in exchange for their securities, and they pay interest to the central bank to get the funds.

Fed money-market interventions aim to keep the federal-funds rate within the central bank's 1.5%-to-1.75% target range and limit the volatility of other money-market rates. The Fed controls the fed-funds rate to influence the overall cost of borrowing in the U.S. economy as part of its efforts to achieve the job and inflation goals set for it by Congress.

The Fed restarted its repo operations in September after a decadelong break in the wake of unexpected money market volatility. Demand for Fed money has waxed and waned, and by and large the Fed has restored calm to markets and kept short-term rates where it wants.

The Fed has used repo operations for decades to influence short-term rate settings.

The central bank said last week that as of Wednesday its balance sheet stood at $4.15 trillion, down $29.9 billion from the week before. Fed holdings were at $3.8 trillion in September and peak Fed holdings were $4.5 trillion in the wake of the financial crisis. About $186.1 billion in repos were outstanding on Wednesday.

Write to Michael S. Derby at michael.derby@wsj.com

(END) Dow Jones Newswires

January 27, 2020 09:27 ET (14:27 GMT)