Fed funds rate soars

In all reality, what could they do about it now ?
Revamp our monetary system so that this does not happen again. Of course, the banking elite will fight that to the death. The politicians do not have the balls to do the right thing either.

We will need to take our medicine and cleanse the excesses (no free lunches here). But if the solution sold to the public involves more power to the Fed and more socialistic measures in general, we will be much worse off as a free society and the same errors will be made again in the future ... but with more intensity.

Brian
 
Revamp our monetary system so that this does not happen again. Of course, the banking elite will fight that to the death. The politicians do not have the balls to do the right thing either.

We will need to take our medicine and cleanse the excesses (no free lunches here). But if the solution sold to the public involves more power to the Fed and more socialistic measures in general, we will be much worse off as a free society and the same errors will be made again in the future ... but with more intensity.

Brian

and people think fighting big oil is tough.
 
Do not delude yourself into thinking this mess is just a republican issue. It is not. Not even close.

Brian


ohhhh, no doubt ALL of our congresses over the decades have been slowly leading to this....but this administration/congress was delinquent in addressing the writing that was on the wall....a few years ago imo

care
 
An additional $70 billion was injected by the Fed this morning in two separate injections. $50 billion at 8:20am EST and $20 billion at 9:40am EST. The collateral accepted was in the same proportion as yesterday ... approximately $49 billion in MBSs and $21 billion in agency debt.

Temporary Open Market Operations - Federal Reserve Bank of New York

Brian

The Fed funds rate soared this morning forcing the Fed to intervene and provide the largest liquidity injection since 9/11/01. This is considerably more than the injection that took place at the "beginning" of the credit crisis last August when banks refused to lend to each other and the Fed had to jump in to provide liquidity. The most recent injection came in two chunks. After the $20 billion injection this morning at 9:40am EST failed to contain the fed funds rate (reportedly soared to 6%, whereas 2% is the target), the Fed responded with an additional $50 billion at 11:50am EST. What did the Fed purchase for $70 billion in newly created dollars (assuming there were no sterilization operations - we will know shortly)? Nearly $49 billion in mortgage-backed securities and about $21 billion in agency debt (Fannie, Freddie, etc.). None of the injections took treasuries as collateral.

Temporary Open Market Operations - Federal Reserve Bank of New York

Brian
 
An additional $70 billion was injected by the Fed this morning in two separate injections. $50 billion at 8:20am EST and $20 billion at 9:40am EST. The collateral accepted was in the same proportion as yesterday ... approximately $49 billion in MBSs and $21 billion in agency debt.

Temporary Open Market Operations - Federal Reserve Bank of New York

Brian

Brian, keep us up to date on how they sterilize these injections, if at all. You are much more in tune to the balance sheet operations than I, and probably most of us here.

This said though, do you expect them to offset the inflationary measures with something deflationary? How much Treasuries do they even have left?
 
Brian, keep us up to date on how they sterilize these injections, if at all. You are much more in tune to the balance sheet operations than I, and probably most of us here.

This said though, do you expect them to offset the inflationary measures with something deflationary? How much Treasuries do they even have left?
I probably should have not used the term sterilization, since this technically only applies to the lending facilities in use by the Fed. Here we are talking about the temporary open market operations (repos and reverse repos) conducted by the Fed to manage the reserves in the banking system. While the repos are initially inflationary, they become deflationary as the loans mature and are not re-issued (or if they are reverse-repoed). Thus, you can view the liquidity being provided here as temporary. Although the definition of temporary has increased in the last year (the time to maturity).

The thing to watch is the aggregate level of repo operations. As of last Wednesday (9/10), this level was at $82.454 billion. I expect that to grow in this Thursday's H.4.1 Release.

So, regarding your last question, no ... because this is not how the Fed's daily market operations work. These operations are used simply to affect the amount of reserves in the banking system (managing the fed funds rate). When lending between the banks in the fed funds market gets too tight, the Fed must intervene with liquidity injections to bring the fed funds rate back down. If they immediately offset this by selling treasuries from its portfolio, it would defeat the purpose. If the system becomes flooded with money, they would either let loans/repos expire (without renewing) or execute reverse repos to mop up the liquidity (bringing the fed funds rate back up).

The Fed has approximately $473 billion in treasuries as of last Wednesday (9/10).

Brian
 

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