Re: NY Fed to pump $75 bn into money markets daily through Oct 10
something is amiss.
<<Nevertheless, the fact that the Fed was forced all of a sudden by a panicky market to abandon Plan A and revert to how it used to do it, rather than implementing the transition methodically, on its own, in its gradual manner, must have come as a shock.>>
<<Coming out of the financial crisis, after the Fed cut interest rates to near zero and bought more than $3.5 trillion of bonds, banks built up massive reserves held at the Fed.
But that level of bank reserves, which peaked at nearly $2.8 trillion, began falling when the Fed started raising interest rates in late 2015. They fell even faster when the Fed started to cut the size of its bond portfolio about two years later.
The Fed stopped raising interest rates last year and cut them in July and again on Wednesday. It has also now ceased allowing bonds to roll off its balance sheet.
The question vexing policymakers now is whether those actions are enough to stop the downward drift in reserves, which are a main source of liquidity in funding markets like repo.
Bank reserves at the Fed last stood at $1.47 trillion, the lowest level since 2011 and nearly 50% below their peak from five years ago.>>