New York Fed to inject an additional $ 75 billion into money markets
Fed Chairman Powell attributed the cash crunch to huge cash withdrawals that sucked money from banks – corporate tax payments that coincided with an increase in bond issuance of the Treasury, which moved money from the market to the government.
NEW YORK: For a fourth day in a row, the New York Federal Reserve will inject billions into US money markets on Friday to preserve the US central bank’s control over short-term interest rates.
The New York Fed said in a statement on Thursday that it would re-conduct a repo transaction worth up to $ 75 billion to provide more liquidity to the cash-strapped system.
He offered the same amounts in repo trades on Tuesday, Wednesday and Thursday – for a total of just over $ 200 billion – but in the last two trades demand has exceeded the amount offered.
Federal Reserve Chairman Jerome Powell this week showed little concern about the crucial plumbing problem in US financial markets, arguing that it did not reflect the real economy or monetary policy.
Powell and economists blamed the cash crunch on huge cash withdrawals that sucked money out of banks – corporate tax payments that coincided with an increase in Treasury bond issuance, who moved money from the market to government coffers.
When withdrawals threaten to drop bank reserves below required levels set by the Fed, banks use very short-term borrowing, usually overnight, to fill the gap.
The Fed also adds or removes liquidity to keep interest rates in line with the desired goal, which is the job of the New York Fed.
But the liquidity shortage in recent days prompted the New York Fed to pump just over $ 275 billion into the market in the short term as interest rates charged for overnight loans skyrocketed, threatening to break out of the Fed’s target range.
The central bank lowered benchmark loan interest rates on Wednesday to boost the U.S. economy, but also made some technical adjustments to help keep market rates in line with the range. , in particular by reducing the interest it offers on bank reserves held at the Fed that exceed the minimum required level.