Courtesy of Pam Martens
By Pam Martens and Russ Martens
The typically calm and unruffled Fed Chairman Jerome (Jay) Powell had a furrowed brow yesterday as he walked to the podium at his press conference at 2:30 p.m. It was clear from the outset that Powell had been put on a short leash as to what he could and could not say about the underpriced repo loans that the Fed has authorized the New York Fed to shower on the trading houses of Wall Street to the tune of hundreds of billions of dollars per week since last September 17. This is an unprecedented action by the Fed when there is no known financial crisis occurring. As we reported on Monday, the New York Fed has pumped a cumulative $6.6 trillion into those Wall Street trading houses in just the past four months – a third of the amount of its support during the 2007 to 2010 financial crisis.
Adding to the scripted quality of the press conference, about nine minutes into the press conference when Nick Timiraos of the Wall Street Journal asked Powell about the level of bank reserves the Fed might need going forward, Powell interjected with a prepared statement on repos, reading word for word from the script. Powell read the following:
“As our [Treasury] bill purchases bring the underlying level of reserves up to an ample level on a sustained basis, the necessary quantity of overnight and term repo will gradually decline. We’ve already begun the gradual reduction in the quantity of repo and we’ll continue to reduce those offering amounts gradually as conditions permit. At some point we’ll also raise the minimum bid rate. Even after we reach an ample level of reserves it’s possible that repo operations might play a role as a backstop and support effective control of the Federal Funds rate. And we’ll continue to discuss that issue in review and implementation framework.”
That was definitely not what the Wall Street trading houses wanted to hear. Tapering and a possible spike in the interest rate the Fed might charge them for their gambling money sent the Dow on a downward spike. The selloff accelerated with the next question from CNBC’s Steve Liesman at about 13 minutes into the press conference. Liesman posed the following question to Powell:
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