The Federal Reserve has been forced to take an action it has not taken for a long time that harkens back to problems that arose during the 2008 financial crisis. This Reuters article explains the problem very well. While there is no indication at this time that this problem has gotten out of control, it is something to keep an eye on. Below are some excerpts.
-------------------------------------------------------------------------------------------------------------------"As if the U.S. Federal Reserve didn’t already have enough on its plate heading into its meeting on interest rates this week, chaos deep inside the plumbing of the U.S. financial system has thrown policymakers an unexpected curveball.
Cash available to banks for their short-term funding needs all but dried up on Monday and Tuesday, and interest rates in U.S. money markets shot up to as high as 10% for some overnight loans, more than four times the Fed’s rate.
That forced the Fed to make an emergency injection of more than $50 billion, its first since the financial crisis more than a decade ago, to prevent borrowing costs from spiraling even higher. It will conduct another one on Wednesday."
. . . .
WHY IS THE REP MARKET IMPORTANT?
"The repo market underpins much of the U.S. financial system, helping to ensure banks have the liquidity to meet their daily operational needs and maintain sufficient reserves."
Added notes:
Street.com article on this same situation
CNBC article
Jim Rickards offers this comment on Twitter
Judy Shelton posts this on her Twitter feed on 9-20-19
(she points out this news posted by the Fed)
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