New York Fed Adds $74.2 Billion to Markets in Two Operations--Update
16 January 2020 - 11:17PM
Dow Jones News
By Michael S. Derby
The Federal Reserve Bank of New York added $74.2 billion in
temporary money to financial markets Thursday via two repurchase
agreement operations, or repos.
An overnight operation added $39.4 billion, and a 14-day
operation added $34.8 billion. The overnight repos were much
smaller than the $120 billion the Fed was willing to offer, while
the term repo was just under the $35 billion cap.
Fed repo interventions take in U.S. Treasurys, agency and
mortgage bonds from eligible banks in what is effectively a
short-term loan of central-bank cash, collateralized by the
securities. Banks accessing this money -- the companies are called
primary dealers -- are limited in the amount of liquidity they can
tap from the Fed, and they pay interest to the central bank to get
the funds.
Fed money-market interventions are aimed at keeping the
federal-funds rate within the 1.5% and 1.75% range, and to limit
the volatility of other money-market rates. The Fed restarted its
repo operations in September after unexpected market volatility and
has steadily increased the sizes of its operations. Demand for Fed
money has waxed and waned.
The Fed targets control of the fed-funds rate to influence the
overall cost of credit in the economy, as part of its work to
achieve its inflation and job goals. The Fed had hoped to end its
repo operations this month as Treasury-bill buying bolstered the
underlying level of reserves. But earlier this week, the New York
Fed said repo operations will continue through at least
mid-February, and there are widespread expectations repos will stay
around for even longer as the central bank tries to sort out why
money-market functioning has changed.
The Fed said Thursday that its balance sheet stood at $4.18
trillion as of Wednesday, versus $3.8 trillion in September. Peak
Fed holdings were $4.5 trillion. About $229.5 billion in repo
interventions were also outstanding on Wednesday, versus $210.6
billion on Jan. 9.
While Fed officials have said repeatedly that their
interventions are technical, there is skepticism on that point
among many financial market participants. Most Fed officials say
the temporary and permanent interventions are aimed only at
affirming existing control over short-term rates and aren't aimed
at pulling down longer-term yields, as past stimulus efforts
were.
However, Dallas Fed leader Robert Kaplan sees the situation a
little differently. Speaking with reporters in New York on
Wednesday, Mr. Kaplan -- he will be a voting member of the
rate-setting Federal Open Market Committee this year -- said he is
sympathetic to those who fear the Fed balance-sheet operations are
pushing up stock prices.
"Many market participants believe that growth in the Fed balance
sheet is supportive of higher valuations and risk assets," Mr.
Kaplan said.
"The Fed balance sheet is not free, and growing the balance
sheet has costs," Mr. Kaplan said. "It would be healthy to get to a
point where, certainly, we don't need to do these daily and term
[repo] operations. But I also want to do that in a way that has a
structure and mechanisms in place that will again temper, limit,
restrain the growth in the balance sheet overall."
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
January 16, 2020 18:02 ET (23:02 GMT)
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