Fed Adds $55.3 Billion in Weekend Liquidity
24 January 2020 - 3:20PM
Dow Jones News
By Michael S. Derby
The Federal Reserve Bank of New York intervened in financial
markets Friday with a $55.3 billion weekend repurchase agreement,
or repo, adding to the temporary amount of liquidity the central
bank has pumped into the financial system.
The repo operation took in $28.5 billion in U.S. Treasurys and
$26.8 billion in mortgage bonds. Given longer-term repos already in
place and operations from Thursday that were expiring, total
temporary liquidity rose by $11.2 billion to $187.3 billion in
outstanding repo operations.
Fed repo interventions take in Treasurys, agency and mortgage
bonds from eligible banks in what is effectively a short-term loan
of central-bank cash, collateralized by the securities. The banks
tapping this cash are limited in the amount of liquidity they can
take in exchange for their securities, and they pay interest to the
central bank to get the funds.
Fed money-market interventions aim to keep the federal-funds
rate within the central bank's 1.5%-to-1.75% target range and limit
the volatility of other money-market rates.
The Fed restarted its repo operations in September after a
decadelong break in the wake of unexpected money market volatility.
Demand for Fed money has waxed and waned, and by and large the Fed
has restored calm to markets and kept short-term rates where the
Fed wants.
The Fed sets the federal-funds rate to influence the overall
cost of borrowing, as part of its effort to achieve the inflation
and job goals set out for it by Congress. The Fed has used repo
operations for decades to influence short-term rate settings.
The central bank said on Thursday that as of Wednesday its
balance sheet stood at $4.15 trillion, down $29.9 billion from the
week before. Fed holdings were at $3.8 trillion in September and
peak Fed holdings were $4.5 trillion in the wake of the financial
crisis. About $186.1 billion in repos were outstanding on
Wednesday.
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
January 24, 2020 10:05 ET (15:05 GMT)
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