Fed Adds Nearly $50 Billion To Markets, But Overall Temporary Liquidity Declines
January 27 2020 - 9:42AM
Dow Jones News
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)
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