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U.S. Fed reverse repo volume hits record $1T
- Ancalagon 5y agoI don't even comprehend numbers that large moving that quickly. Can anyone better at understanding economics explain what this means to me?
- ffggvv 5y agoit isn't clear what it means if anything. basically just means banks have way more cash than they know what to do with (due to fed policy), so they are parking it overnight at the fed for close to zero interest. the fed introduced this program to prevent interest rates from going below zero. they are essentially a floor on the market. and soaking up excess short term liquidity.
- JumpCrisscross 5y ago> fed introduced this program to prevent interest rates from going below zero FOMC repos and reverse repos predate ZIRP.
- rebelos 5y ago> it isn't clear what it means if anything What it indicates is what the Fed knows and has already signaled: monetary policy is going to be largely ineffectual in the near term.
- JumpCrisscross 5y ago> monetary policy is going to be largely ineffectual in the near term The failure mode you're alluding to is a Keynesian liquidity trap [1], a sibling to stagflation (inflation and demand failure): deflation and demand failure. The American economy shows no failure of aggregate demand. (Quite the opposite.) Inflation expectations are rising. And these reverse repo data shows banks relinquishing liquidity, not hoarding it. More pointedly, this increase resulted from the FOMC increasing reverse repo rates. That's monetary policy causing intended effects. [1] https://en.wikipedia.org/wiki/Liquidity_trap https://en.wikipedia.org/wiki/Liquidity_trap
- JumpCrisscross 5y ago> Can anyone better at understanding economics explain what this means to me? Reverse repos involve banks buying securities from the Fed in the evening, with the Fed agreeing to buy them back in the morning for another price. Until recently, the first price and second price were the same. Now, the second price is 0.05% higher (annualised). Banks are parking a trillion dollars with the Fed overnight. That’s a trillion dollars that won’t be lent, i.e. won’t contribute to growth or inflation.
- trenning 5y agoDoes that mean the fed is earning ~$50billion in interest a day? That seems good for our national budget unless I'm misinterpreting it.
- tru3_power 5y agoWhy exactly is the 2nd price higher? What purpose does that serve/what does it signal?
- skzv 5y agoI think it incentivizes banks to buy the securities from the Fed (to hold overnight). Otherwise why bother?
- bookofsand 5y agoInflation with a chance of hyper.
- altspace 5y agoThis is to balance the impact of low interest rates on money market funds to avoid them from going into negative rate territory.