Why the Fed injected more than $ 270 billion into money markets in a week

The US Federal Reserve intervened Friday, for the fourth time of the week, up to 75 billion dollars.

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Chairman of the US Federal Reserve (Fed) Jerome Powell, Washington, 18 September. OLIVIER DOULIERY / AFP

For some, it may be the harbinger of a new financial storm. For others, it's just technical operations. On Friday, September 20, for the fourth time this week, the US Federal Reserve (Fed) was to inject 75 billion dollars (68 billion euros) in the money markets, by operations called "repo", after having already intervened Tuesday ( 53 billion), Wednesday and Thursday (75 billion in both cases). On Wednesday, the president of the institution, Jerome Powell, played down these " problems ", assuring that they had "No implication for the economy". But the questions remain.

  • What is the "repo"?

The repo, contraction of the expression sale and repurchase agreement ("Pension livrée", in French), is a key instrument of the money markets. Every day, financial institutions (mainly banks) intervene in these markets to find short-term liquidity, most often over twenty-four hours. They borrow these sums from other banks, giving them in return, as collateral, very secure securities, such as treasury bills. The next day, they repay the amount borrowed with interest and recover their securities.

These repo are, in a way, the oil allowing the engine of the financial system to work well. They allow financial institutions (and, through them, businesses) to respond without difficulty to their one-time dollar requirements – for example, to cope with a gap of a few hours between cash inflows and outflows. In the United States, these transactions are financed at a rate close to the Fed's key rates, which vary between 1.75% and 2%.

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  • Why were the repo rates soaring?

At the start of the week, repo rates rose sharply, climbing to 10%. Reason: A shortage of cash suddenly appeared on the money markets, forcing the Fed to intervene for the first time in ten years. On three occasions, it made available to the banks substantial cash, repaid the following day, against the taking as security of securities. And she had to conduct a new operation of this type on Friday.


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