New York Fed to continue operations in overnight funding market until mid-October

[yaesu]

Source: CNBC

The New York Federal Reserve will continue overnight repurchase operations through October as it seeks to quell market instability from earlier this week.

Short-term rates in the “repo” market spiked overnight Monday amid a shortfall in funding stemming from a variety of factors. The Fed responded with a series of liquidity injections aimed at preventing further capital droughts.

In an announcement Friday, the New York Fed said it will continue repo operations through Oct. 10. The process will involve three 14-day operations involving $30 billion as well as continued overnight operations of at least $75 billion each.

The repo market provides banks the short-term funding they rely on to operate. Normally, the process works smoothly but liquidity shortfalls can gum up the works and, in the worst case, can cause financial crises.

Read more: https://www.cnbc.com/2019/09/20/fed-repo-new-york-fed-to-conduct-operations-until-mid-october.html

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Also overnight Fed Adds $75 Billion to Financial System in Fourth Repo Transaction This Week

that will be a total of a little over 1.8 trillion

[Wellstone ruled]

1. Wow,I figured 1.5 trillion.

1.8 trillion just added to the Debt in one month via Printing Currency just to keep the Banks from freezing up. Going to shift the Economic Slide into high gear.

Watch out for some serious Inflation to happen damn quick. And add that on top of all the Tariff Price increase that are now being hammered on Consumers.

Some more of the failed Chicago School of Economics Supply model.

[FBaggins]

3. This isn't related to inflation or money supply

It's a liquidity issue.

The big deal is that banks don't generally go to the fed window in the first place, because borrowing that overnight liquidity from another bank is cheaper. Banks charge each other the Fed Funds rate, which is .5% lower than the discount rate. Banks also avoid it because it hints that there might be something wrong with your A/L management and the other banks won't lend to you. It makes you look bad.

That doesn't appear to be the case here. Instead, there appears to be a general liquidity shortage (not an asset shortage... they have to put up treasury securities as collateral) on the part of banks in general. If it's true that this is due to higher than expected tax payments... it isn't a big deal and should go away quickly. If that $75Billion figure keeps climbing, it could be something worse.

But dump your fears of inflation. Deflation is the much more likely concern right now (as it has been for some time).

[Wellstone ruled]

6. The Deflation will follow

a short term Inflation spike. As someone who has been around retail and wholesale for five plus decades. When I walk into a Retailer,I am seeing pricing increase galore. And that will translate into a short term liquidity loss to the 70% of the populace.

Thanks for the info as to overnight bail outs. This total amount of cash infusion will have to be transferred from some where. And with Tax Receipts falling below the worst estimates,this will in time cause a major freeze up in the system.

Fully understand the discount rate on overnight deposits. But,there is something else going on. Are the Banks stuffing their Balance sheets?

[Miguelito Loveless]

7. I am confused

Thanks to TrumpCo's irresponsible tax cuts, megabanks and megacorps are paying the lowest taxes ever. And yet, they are searching the couch cushions to make their quarterly tax payments?

[Wellstone ruled]

8. Just heard a fellow who

explained what is happening and why with the Overnight Discount funding. What has happened is,some Federal Reserve Districts have more than enough money to fund short falls. But,there is a bunch that is short of funds that is causing some areas to need help to cover overnight needs.

Appears it will take another three weeks for this to even out and up to 1.8 trillion in funds to make it happen.

[roamer65]

16. The New York Fed has the special task of handling market operations.

If the NY Fed can’t do it legally, then they use the 13th Federal Reserve District for the operation.

That 13th district is JP Morgan Chase. Their special status with the federal gov’t goes all the way back to 1895.

[IronLionZion]

9. Deficits are higher because of the tax cuts, so more treasury bonds were issued

and that jacks up short term rates. The NY Fed is trying to lower those rates.

More info:

https://www.cnn.com/2019/09/18/business/ny-fed-overnight-lending-rescue/index.html

If I can find a good explainer online I'll post it to DU. I think there are signs of weakness in our economy and recession is coming sooner than they would have us believe. If it's before the election, Trump should lose but then our Dem will have a lot to fix, just like Obama did.

[pbmus]

12. 2021 and 22 are going to be rough for the world financial community...

Our next president will have to deal with monetary changes that we have not dealt with in over 50 years...

[roamer65]

15. The Fed won't allow deflation.

Stocks, Treasury paper, corporate paper, etc, etc...they are going to go into the markets and start buying it all.

Not to mention negative interest rates on any CD or bank account.

[FBaggins]

2. That's not how it works

Overnight funds are simply that. They get repaid the next day.

[DrToast]

4. +1

[SansACause]

5. Could someone explain what is happening?

Why is the Fed having to put this much money into banks until mid-October? What is causing the liquidity shortfalls?

[IronLionZion]

10. There are signs of weakness in our economy directly related to Trump's tax cuts

and increased deficits. The administration has been bullying the Fed to prop up the economy to hide those signs of weakness. For example, short term treasury rates are higher than intermediate rates, which is an inverted yield curve and an important historic indicator that recession is coming.

[roamer65]

14. We are issuing too much Treasury paper.

It is draining the liquidity out of the the system. It is reverse QE on steroids, all thanks to Repuke fiscal incompetence.

[pbmus]

11. Somebody has to pay for the tax cut to the wealthy...

And climate crisis all over the world, and the mismanagement of the country, and , and, and, and, and, and, and, and....

[gldstwmn]

13. Not bueno.