Courtesy of Pam Martens
New York Fed Headquarters Building in Lower Manhattan
The storyline in the business press is that the lending rate on overnight repos had spiked to an unprecedented 10 percent, necessitating an emergency infusion of $53 billion by the New York Fed on Tuesday to ramp up liquidity for overnight loans and bring down the loan rate. (That was followed with $75 billion more on Wednesday, Thursday and today – raising the question that if the money is going to the same banks, isn’t that a term loan, not an overnight loan? We don’t know, however, if the money is going to the same banks because the Fed, as it did during the 2008 financial crisis, is staying mum about where the money is going.)
As it turns out, the Federal Reserve’s Federal Open Market Committee (FOMC) directive that authorized the Tuesday operation was dated July 31, 2019 – 45 days prior to the action. What was it that the Fed saw in the tea leaves back in July that prompted it to write that directive on July 31? This is the statement from the New York Fed indicating its first $75 billion operation on Tuesday, of which $53 billion was taken by the banks, was under a directive dated July 31:
“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…”
The largest banks on Wall Street are the Fed’s “primary dealers,” along with the U.S. units of numerous global banks. See the full list here.
…
