Fed Pumps $70.1 Billion in One-Day Liquidity Into Financial Markets

Central bank continues interventions aimed at ensuring the financial system has enough liquidity

By Michael S. DerbyUpdated Dec. 4, 2019 2:00 pm ET

The Federal Reserve Bank of New York added $70.1 billion in temporary liquidity to financial markets on Wednesday.

The intervention via overnight repurchase agreements, or repos. Eligible banks offered the Fed $54.9 billion in Treasurys and $15.2 billion in mortgage securities, and the Fed accepted all of it.

The Fed also bought $7.5 billion in Treasury bills. Dealers offered the Fed $22.31 billion.

Fed repo interventions take in Treasury and mortgage securities from eligible banks in what is effectively a short-term loan of central-bank cash, collateralized by the securities.

The Fed’s interventions are aimed at ensuring that the financial system has enough liquidity and that short-term borrowing rates are stable and consistent with Fed goals, with the central bank’s federal-funds rate staying within the 1.5%-to-1.75% target range. The effective fed-funds rate stood at 1.55% on Tuesday. The broad general collateral rate for repo trading stood at 1.51%, also for Tuesday.

The Fed has been intervening in markets in the current fashion since mid-September, when short-term rates unexpectedly shot up on a confluence of factors. The Fed has used similar operations for decades to manage short-term rates.

Since the large interventions started, money-market rates have calmed down. The Fed is using temporary operations to tamp down any possible wild moves, while purchasing Treasury bills to build up reserves in the banking system. It hopes that by buying Treasury bills, the central bank will be able to cut back on repo interventions at the start of next year.

The Fed also bought $7.5 billion in Treasury bills on Wednesday. Dealers offered the Fed $22.31 billion.

The central bank currently expects to buy Treasury bills through the middle of next year.


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