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The New York Fed hasn’t had to conduct such a repo transaction since 2008 because during and after the financial crisis, the Fed flooded the banking system with reserves when it purchased hundreds of billions of dollars of Treasurys and mortgage-backed securities in an effort to spur growth after cutting interest rates to nearly zero.
The pressures that had sent rates higher were related to shortages of funds for banks, stemming from rising government deficits and the central bank’s decision to shrink its securities holdings in recent years. Its reduced holdings have soaked up funds in the financial system, crimping liquidity.
“The issue here is not that the level of reserves is structurally too low. We’ve reached the level where the market doesn’t respond to temporary deposit flows as efficiently or fluidly,” said Lou Crandall, chief economist at financial-research firm Wrightson ICAP.
The Fed needs to re-establish repo ops at key points in the cycle, such as mid-month and quarter end refundings. If what is being reported is all that there is, this should be pretty easy to fix.
The Fed needs to re-establish repo ops at key points in the cycle, such as mid-month and quarter end refundings. If what is being reported is all that there is, this should be pretty easy to fix.
If you know this much you would know you're fooling yourself.
If you know this much you would know you're fooling yourself.
Well, let's just keep an eye on this and see what the Fed actually does here. The repo operation today seems to have helped a lot.
I was reading about this earlier, and it looked from what I was reading as if this was more about timing issues and portfolio allocation issues, which resulted in a temporary lack of available funds for this purpose. The Fed today offered $75 billion in repo funds and the market only took $53 billion, if I recall correctly.
Again, my question is, is there more going on than this? If the reporting is pretty close to accurate, this does not currently appear to be the same sort of systematic freezing that we saw in 2008. Rather, it is just a temporary imbalance in the system. Which is likely to reoccur in about two weeks at the end of the quarter, unless I miss my guess.
Maybe we should revisit this thread on the 1st to see if it was right.
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