Market forces want to take over, but the Fed will have none of that…
Something surely is broken alright.
From the NY Fed, just now (bold added for emphasis):
OPERATING POLICYStatement Regarding Repurchase OperationSeptember 17, 2019
In accordance with the FOMC Directive issued July 31, 2019, the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York will conduct an overnight repurchase agreement (repo) operation from 9:30 AM ET to 9:45 AM ET today, September 17, 2019, in order to help maintain the federal funds rate within the target range of 2 to 2-1/4 percent.
This repo operation will be conducted with Primary Dealers for up to an aggregate amount of $75 billion. Securities eligible as collateral in the repo include Treasury, agency debt, and agency mortgage-backed securities. Primary Dealers will be permitted to submit up to two propositions per security type. There will be a limit of $10 billion per proposition submitted in this operation. Propositions will be awarded based on their attractiveness relative to a benchmark rate for each collateral type, and are subject to a minimum bid rate of 2.10 percent.
Why is this being done?
From Zero Hedge:
Not long after we hinted that today’s action in the US repo market is similar to what took place in 2013 China, when an explosion in funding rates nearly destroyed the local banking system before the PBOC intervened, the Fed has done just that, and as everyone – finally – began to realize this morning that something was very broken in the short-term liquidity markets, as overnight general collateral repo exploded to 10%…
This is precisely what we said last Friday would be the Fed’s first line of defense, when we laid out what may happen after the dollar funding shortage arrives:
- repos, i.e. temporary ad hoc reserve adding open market operations,
- Treasury purchases, i.e. permanent open market operations, similar to outright UST QE only without a clear QE mandate (for now), and
- standing repo facility (SRF), i.e. a new facility that could “automatically” add reserves to the banking system when GC or fed funds reaches a threshold above IOER.
We are now at 1. If and when repo rates continue to rise even with the Fed’s repos in market, the Fed will have no choice but to launch either QE or start a standing repo facility.
What’s the key take-away on Tuesday morning?
Fed’s unwilling to let market forces prevail.
So it’s about to be pedal to the metal.
With the Fed’s manipulations.
It’s for the good of what?
The banks Americans.
Fed knows best!
– Half Dollar
About the Author
U.S. Army Iraq War Combat Veteran Paul “Half Dollar” Eberhart has an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill. Paul dived into gold & silver in 2009 as a natural progression from the prepper community. He is self-studied in the field of economics, an active amateur trader, and a Silver Bug at heart.