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Unless you think the biggest repurchase (repo) efforts ever — surpassing the 2008 financial-crisis actions — are hyperbole:
Something’s off. See, it all started as a temporary fix in September when, suddenly, the overnight target rate jumped sky high and the Fed had to intervene to keep the wheels from coming off. Short-term liquidity issues, the Fed said. Those have become rather permanent:
And liquidity injections are massive and accelerating. On Tuesday, the Fed injected $99.9 billion in temporary liquidity into the financial system and $7.5 billion in permanent reserves as part of a program to buy $60 billion a month in Treasury bills. The $99.9 billion comes from $64.9 billion in overnight repurchase agreements and $35 billion in repo operations.
But market demand for overnight repo operations has far exceeded even the $75 billion the Fed has allocated, suggesting a lot more liquidity demand. Hence, on Wednesday the Fed suddenly announced a $45 billion increase on top of the $75 billion repo facility for a daily total of $120 billion. Here’s the Federal Reserve Bank of New York, the branch involved in such actions:
“Funding issues,” Chairman Powell called it in October. The Fed was totally caught off guard when the overnight financing rate suddenly jumped to over 5%, and it’s been reacting ever since.
Did you note the accelerated pace of Fed actions here? The Fed went from pausing rate increases to ending the balance sheet roll-off to multiple rate cuts and, finally, aggressive daily repos and balance-sheet expansion. All of this since July. And guess what? Another rate cut is coming next week.