FED panics over dollar funding, QE next step?
derryb
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"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
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Somebody, somewhere has some idea of what might be going on - maybe....
Cheers, RickO
FED buys back control of rates: $75 billion in "re" purchases.
"The New York Federal Reserve Bank on Tuesday stepped into financial markets for the first time in more than a decade to keep interest rates in line with the Fed's target. The New York Fed said the $75 billion in repurchase agreements -- known as "repos" -- were made "in order to help maintain the federal funds rate within the target range of 2 to 2-1/4 percent."
Yepper, the market took the rate away from the FED and the FED bought it back. QE by any other name.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
"in more than a decade"
repos and reverse repos pre-date QE and are not QE, Quantitative Easing. QE created money from nothing. The newly created money bought up Treasuries and brought down interest rates. This keystroked money brought up banks' excess reserve balances. These are separate accounts from the SOMAccount.
the repo comes from an OMOperation. In this case they bought up the short end to lower yields and influence down the upward bound of the fed funds rate. This added no new money to the Fed Balance sheet.
There was no QE.
It has been claimed in the news that the Fed Balance sheet may not have room for more such repos. Back when the Fed's balance sheet was under $1T and it was also before QE, the Feds had no problem with repos. They'd do repos on consecutive days. So, I doubt that they are out of ammunition in their SOMA after only 1 repo, but it really is a question for the Fed isn't it? Me? I chalk the talk up to erroneous speculation. However, It's kind of like thinking there has to be guided missiles or long-range guidance of oil processing plant attack drones. Until it is known, then no one really knows. (And that also goes the same for the people in the news, doesn't it?)
read the OP link.
Treasury Purchases next. Permanent (QE), unlike temporary repos.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I will.
watch the FOMC q&a session to see if he is asked any questions about it. I can't watch it.
2nd day in a row...
https://www.marketwatch.com/story/fed-carries-out-repo-operation-for-second-straight-day-2019-09-18
repos and reverse repos and I forgot overnight reverse repos are part of the feds open market operations and were used even several days in a rows well before QE was even conceived.
these omo are not QE. more to follow.
as stated earlier, and as shown in the last crisis, they are the prelude to QE
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
https://www.newyorkfed.org/markets/opolicy/operating_policy_190918
Operating Policy
Statement Regarding Repurchase Operation
September 18, 2019
In accordance with the FOMC Directive issued September 18, 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 8:15 AM ET to 8:30 AM ET tomorrow, Thursday, September 19, 2019, in order to help maintain the federal funds rate within the target range of 1-3/4 to 2 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 1.80 percent.
Repo round 3. LOL
Powell Confirms QE4 Is Coming, Just Not Today: "It is certainly possible that we’ll need to resume the organic growth of the balance sheet sooner than we thought.”
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
testing to make sure everyone is ready
https://www.newyorkfed.org/markets/opolicy/operating_policy_190506
as stated this was in May. These are operations tests. the fact they run tests means these omos are nothing new.
The New York Fed undertakes certain small value open market transactions from time to time for the purpose of testing operational readiness to implement existing and potential policy directives from the Federal Open Market Committee (FOMC). The FOMC authorizes the New York Fed's Open Market Trading Desk (the Desk) to conduct these exercises to test its operational readiness in the Authorization for Domestic Open Market Operations and Authorization for Foreign Currency Operations.
In connection with these authorizations, the Desk intends to conduct a series of four small value repo and reverse repo operations during the month of May. Each operation will begin around 9:40 AM ET, and end at 10:00 AM ET and be open to Primary Dealers and/or Reverse Repo Counterparties. All counterparties will be limited to one $1 million proposition per tranche during each operation.
where ZH gets some of its data
https://apps.newyorkfed.org/markets/autorates/tomo-results-display?SHOWMORE=TRUE&startDate=01/01/2000&enddate=01/01/2000
considering they periodically test, it is humiliating that the top central bank posts this:
https://www.newyorkfed.org/markets/opolicy/operating_policy_190917
Operating Policy
Statement Regarding Repurchase Operation
September 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
*Due to _technical difficulties_ the repo operation was _rescheduled_ to run from 9:55 AM ET to 10:10 AM ET.
My bad!
point to make # 1
below this paragraph at the bottom is a table of data:
Ever since March 20, this fear is front and center because as shown in the chart below, starting on March 20, the effective Fed Funds rate rose above the IOER first by just 1 basis point. The Fed attempted to technically tamp this down.. and failed. But today the Effective Fed Funds Rate has exploded....
source of table of data:
https://apps.newyorkfed.org/markets/autorates/fed funds
below the table of data is a chart not shown nor referenced in the article:
point - the fed funds rate is set to a range for a reason. it's a market. they take action as necessary to keep things in the range. on march 20 forward, the EFFR was in the desired range.
that is what they got wrong. they highlighted some "front and center fear" when there was none...... note the graphed variance after march both above and below 2.4%. Where is the fear via repos? nowhere. the EFFR is within the desired range.
but they would get it right yesterday if they actually had yesterday's data -- note the ZH published table excludes yesterday's data -- when the EFFR did venture (explode?) higher above the range yesterday.
(Also note in their displayed table of data that the red highlighting does not highlight the "target range")
Why is the NY Fed pumping billions into the money market?
"More generally, more government securities have built up on the balance sheets of private firms these days as the Fed has begun to wind down the massive holdings of Treasury paper it amassed during the global financial crisis -- which has also sucked cash out of the market."
Appears that the FED's unwinding of its balance sheet is creating the problem that the FED, for three strait days now, is trying to fix with even further direct market intervention.
Maybe FED should just leave markets alone.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
what is IOER?
The interest rate on excess reserves (IOER rate) is also determined by the Board and gives the Federal Reserve an additional tool for the conduct of monetary policy. According to the Policy Normalization Principles and Plans adopted by the Federal Open Market Committee (FOMC), during monetary policy normalization, the Federal Reserve intends to move the federal funds rate into the target range set by the FOMC primarily by adjusting the IOER rate.
https://www.federalreserve.gov/monetarypolicy/reqresbalances.htm
the primary TOOL to keep it in a RANGE.
the setting for the IOER is 1.80, effective tomorrow, as shown on the page.note in the DDP - data download package - the current IOER is 2.10. Please note, both are inside the respective Fed Funds Ranges.
to manipulate the bottom of the range they also use overnight reverse repo operations ON RRP:
https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/repo-reverse-repo-agreements
Currently, the Desk conducts overnight reverse repo operations daily as a means to help keep the federal funds rate in the target range set by the FOMC. The overnight reverse repo program (ON RRP) is used to supplement the Federal Reserve's primary monetary policy tool, interest on excess reserves (IOER) for depository institutions, to help control short-term interest rates. ON RRP operations support interest rate control by setting a floor on wholesale short-term interest rates, beneath which financial institutions with access to these facilities should be unwilling to lend funds.
yeah ZH thinks IOER is a hard ceiling when the monetary policy tools (and IOER is the primary tool) show the rates are to be in a range.
the only thing to explode was their use of the word explode to describe something that stayed within the desired FF range.
ah
now a cause and a reason for the repo shows up.
short term repo rates spiked up towards 10% Tuesday.** these rates are typically between institutions outside the fed's friends and family and can be longer than overnight.
**
(This is shown in the ZH article in the first graph titled "overnight repo." I can't find the source data for this and don't have access to any place that does. I'll take it at face value.)
the Fed stepped in. it did not step in just because of the unwinding of the fed balance sheet causing problems -- if it did. That is or would be only a fraction of the story.
the cause....
(I only saw the first bit from a ZH story here:
https://www.zerohedge.com/markets/dollar-funding-storm-set-make-landfall-weeks-what-happens-next )
.... there was a super short term dollar shortage of sorts out and about.
the attributed reasons (plural) -
I was listening to the radio on the way around this a.m. one talking head said that it could be a lack of trust in treasuries. does the market act like there is a lack of trust of treasuries right now? I'll add that another reason for a nose bleed near 10% rate could be a breakdown in counterparty trust. Does the market look like there is a breakdown in counterparty trust? Is Cramer pounding the desk saying firms will be going out of business and to open the darn fed window? no and no. Maybe it is just a lack of funds a/k/a liquidity a/k/a cash, which is what media has picked up on.
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=2ahUKEwiY5trW8dvkAhUqZN8KHWcIDRsQFjAAegQIAxAB&url=https://www.wsj.com/articles/feds-repo-rescue-leaves-many-searching-for-answers-11568747574&usg=AOvVaw3yO-UHvL5PUL5WvWdOAXQC
Market participants on Tuesday were mostly at a loss to explain the magnitude of the spike. Most cited a confluence of unrelated factors that in isolation would pose no huge threat but combined to roil the market. Corporations paid their quarterly taxes, and the government collected payment for Treasury bills it sold to dealers last week. Both sucked billions of dollars out of banks and money-market funds, which created a pinch in available short-term funding. The Fed’s intervention Tuesday made more cash available to those seeking to borrow, normalizing rates.
In addition, I heard on tv that there was also a lot of corporate debt issued recently, too.
And about the fed balance sheet... they have been edging small amounts of short ended treasuries off their balance sheet into the treasury market. it has to be bought with cash, of course. The questions revolve around small and the timing of the sales.
I don't know about if they are still doing it. I do point this out:
https://www.reuters.com/article/us-usa-fed-balancesheet/fed-announces-plan-to-end-balance-sheet-runoff-in-september-idUSKCN1R12QA
_By September, the U.S. central bank said its current practice of allowing up to $50 billion of Treasuries and mortgage-backed securities (MBS) to roll off its balance sheet each month will come to an end if the economy evolves “about as expected.” _
small? -
$50billion of just treasuries in a month is not a lot at all (and they may or may not still be doing it)
https://www.treasurydirect.gov/instit/annceresult/press/preanre/2019/R_20190905_1.pdf
that is $55B of 4 week bills. One auction of One type: 4 week bills.
so the fed's normalization effect is or would be just a fraction of the issue, plus there is no requirement they do all $50B (in case of adverse market conditions they may adjust it down)
Thee market has always dictated the rates... price also for that matter...
Fed loses control of its own interest rate as it cut rates — ‘This just doesn’t look good’
"Market pros said the problem came from a cash crunch, not a credit crisis, but the Fed will have to find a permanent fix for it before it impacts the financial system. Fed Chairman Jerome Powell said he expects the market to steady and said the Fed is ready to intervene as needed."
Warm up the presses.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I would say the cash crunch has the true fault of the firms needing the cash.
perhaps the """permanent""" fix rests with the firms not getting themselves in that position again.
Individuals don't need cash, they have credit cards. Maybe those people are hoarding cash out of fear.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Permanent Open Market Operations (POMO) is just a fancy name for QE.
Purchases on an outright basis that add reserves and change the size or the composition of the System Open Market Account or the FED's balance sheet are known as quantitative easing.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
10 billion here, 50 billion there. Pretty soon, it begins to add up to real money.
I knew it would happen.
Oh it's real money. Last time I looked the debt hit $22T now we are more than halfway to $23T. Seems like just a few short months ago.
The whole worlds off its rocker, buy Gold™.
https://www.newyorkfed.org/markets/opolicy/operating_policy_190919
Operating Policy
Statement Regarding Repurchase Operation
September 19, 2019
In accordance with the FOMC Directive issued September 18, 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 8:15 AM ET to 8:30 AM ET tomorrow, Friday, September 20, 2019, in order to help maintain the federal funds rate within the target range of 1-3/4 to 2 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 1.80 percent.
Lol, it’s not real, it’s numbers on a time clock, accessible to virtually anyone around the world, especially those who like to see things move...
https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/repo-reverse-repo-agreements
In a repo transaction, the Desk purchases Treasury, agency debt, or agency mortgage-backed securities (MBS) from a counterparty subject to an agreement to resell the securities at a later date. It is economically similar to a loan collateralized by securities having a value higher than the loan to protect the Desk against market and credit risk. Repo transactions temporarily increase the quantity of reserve balances in the banking system.
In a reverse repo transaction, the opposite occurs: the Desk sells securities to a counterparty subject to an agreement to repurchase the securities at a later date at a higher repurchase price. Reverse repo transactions temporarily reduce the quantity of reserve balances in the banking system.
a repo is not QE lite.
in a repo operation the Desk purchases with a required "sell back to" date.
These are ultra short term actions.
No money is keystroked into creation.
QE lite is a total misrepresentation of the operation.
Oh, and for those wondering why the Fed did a repo, the answer is simple: it did not want to launch QE just yet.
Operating Policy
Statement Regarding Repurchase Operations
September 20, 2019
In accordance with the Federal Open Market Committee (FOMC) directive issued September 18, 2019, the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York will conduct a series of overnight and term repurchase agreement (repo) operations to help maintain the federal funds rate within the target range.
The Desk will offer three 14-day term repo operations for an aggregate amount of at least $30 billion each, as indicated in the schedule below. The Desk also will offer daily overnight repo operations for an aggregate amount of at least $75 billion each, until Thursday, October 10, 2019. Awarded amounts may be less than the amount offered, depending on the total quantity of eligible propositions submitted. Securities eligible as collateral include Treasury, agency debt, and agency mortgage-backed securities. Additional details about the operations will be released each afternoon for the following day’s operation(s).
After October 10, 2019, the Desk will conduct operations as necessary to help maintain the federal funds rate in the target range, the amounts and timing of which have not yet been determined.
Schedule of Overnight and Term Repurchase Agreement Operations
Operation Date........... ....... Overnight.... .................. 14-day Term............. Term Maturity Date
Monday, 9/23/2019........... $75 billion.................. No term operation
Tuesday, 9/24/2019......... At least $75 billion...... At least $30 billion....... Tuesday, 10/08/2019
Wednesday, 9/25/2019... At least $75 billion...... No term operation
Thursday, 9/26/2019....... At least $75 billion...... At least $30 billion........ Thursday, 10/10/2019
Friday, 9/27/2019............ At least $75 billion...... At least $30 billion......... Friday, 10/11/2019
Monday, 9/30/2019 –
Thursday, 10/10/2019.... At least $75 billion...... No term operations
For Monday, September 23, 2019, the Desk will conduct an overnight repo operation for an aggregate amount of up to $75 billion. The operation will be conducted from 8:15 AM ET to 8:30 AM ET. 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 1.80 percent.
While those looking to make new trades could just not make them, this is not sufficient.
I get to say that I think I'm wrong and ZH has a point to make.
more to follow.
on cnbc this a.m., the fed vice chair said they stopped selling their QE purchases 2 months ago and, as reported, will grow the fed balane sheet organically.
"organically." LOL
does that involve synthetic/artificial money?
The FED hit the panic button after the rate for overnight borrowing spiked 4 fold and injected $128 Billion In emergency liquidity to the banks In 48 rs. While not "officially" QE, sounds like pretty good start.
this just the beginning of a panic in interest rates.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
NY Fed to pump $75 bn into money markets daily through Oct 10
It's beginning to look a lot like Christmas QE.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
No panic that I can see except for maybe the conspiracy theorists over at zero hedge lol
The whole worlds off its rocker, buy Gold™.
What does all this mean in little words?
Boo!!👻
Knowledge is the enemy of fear
FED is spending an unplanned $75B a day (at least until Oct. 10) to keep the market from determining a higher interest rate on what banks borrow from each other in the very short term to maintain required cash reserves that are set by the FED. It means there is a liquidity crisis and the FED will have to make a choice between a lower requirement for bank cash reserves or some form of quantitative easing (QE). Cash reserves are one of the tools that protects the economy from bad banks. Lower that and you increase risk of bank failure.
But nothing to worry about. LOL.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
And the FED is not in panic mode? They didn't even see this coming. LOL.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I predict the sun will rise tomorrow and my girls will gift me another dozen eggs. Business as usual.
The whole worlds off its rocker, buy Gold™.
start at 9 minutes and you won't miss discussions of the repo market
https://www.cnbc.com/video/2019/09/20/watch-cnbcs-full-interview-with-fed-vice-chair-richard-clarida.html
from the above video, they saw tightening in the overnight repo market but it did turn out more than expected.
this is also mentioned in the video.
organic balance sheet growth is the growth that occured before QE and the financial crisis.
it is not QE
this one is for you derryb
https://www.investopedia.com/articles/economics/10/understanding-the-fed-balance-sheet.asp
The Meaning of Liability
The Fed can very well discharge its existing liabilities by creating additional liabilities. For instance, if you take your $100 bill to the Fed, it can very well pay you back in five 20-dollar bills or any other combination you like. The Fed can't in any manner be compelled to discharge its liabilities in terms of any other tangible good or services. At best, you could receive government securities by paying back in dollars whenever the Fed is selling. Beyond this, the Fed liabilities are only as good as something written on a piece of paper. In a nutshell, paper promises beget only other kinds of paper promises.
Former Head of NY Fed’s Trading Desk Warns Fed May Have to Buy More Debt to Calm Market
When in reality the market should be calm when the FED is not buying more debt.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Finally, Why the FED had to bail out the repo market:
"Fed is not only trying to figure out why banks with excess cash/reserves parked at the Fed did not offer it to their more liquidity-challenged peers, but why they refused to do so even though any such loan would be perfectly collateralized by money-good securities such as Treasuries, MBS and Agency debt and they refused to do it when repo rates had soared as high as 10%, an unprecedented arb to the Fed's interest rate target range."
"One possible explanation: the banks that should have lent out cash did not do so because they were afraid that i) the borrower would not be able to return the cash on the next day and ii) any potential failure in the banking system would lead to a collapse of the repo system, potentially making their ultra-safe collateral, impaired if not worthless. Hence, their desire to hold on to cash... and dear life."
So, now we know that their was not a liquidity shortage but that there was a shortage of willingness for banks holding all the cash to share it overnight with their peers, even at very high interest rates. We saw in 2008 that in a crisis the banks will circle the wagons and they will eat their own.
New fear among the banks? The next crisis has started.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Wake me up when people start buying gold and silver. I've got a rather large hoard I'd love to sell. I'm not getting any younger.
The whole worlds off its rocker, buy Gold™.
Wake me up when people start buying gold and silver. I've got a rather large hoard I'd love to sell. I'm not getting any younger.
Do you have any of this listed on BST or PM Forum?
I knew it would happen.
I've always been amused at how "panics" occur way too late
They took the gold out of the money. Oh well
They inflated the fiat into near worthlessness. Hmmmmm
They outsourced the jobs so nobody could ...earn... any of the worthless stuff. Oh doggone
They finally backed the money with vacant shacks. Zzzzzz
I sure hope THEY fix all of this.