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BCN-11
US-ECONOMY-BANK-RATE
NY Fed to pump another $75 bn into money markets Friday
NEW YORK, Sept 20, 2019 (BSS/AFP) – For a fourth straight day, the New
York Federal Reserve Bank on Friday will inject billions into US money
markets to preserve the US central bank’s control over short-term interest
rates.
The New York Fed said in a statement on Thursday it will again conduct a
repurchase agreement operation of up to $75 billion to offer more liquidity
to the system that has been running short on cash.
It offered the same amounts in repo operations on Tuesday, Wednesday and
Thursday — for a total of just over $200 billion — but in the past two
operations, demand outstripped the amount offered.
Federal Reserve Chairman Jerome Powell this week showed little concern
about the glitch in the crucial plumbing of US financial markets, arguing
that it did not reflect on the real economy or monetary policy.
Powell and economists have attributed the liquidity crunch to huge cash
withdrawals that sucked money out of banks — corporate tax payments that
coincided with a surge in Treasury bond issuance, which shifted money out of
the market and into government coffers.
When the withdrawals threaten to cause bank reserves to fall below
required levels set by the Fed, banks use very short-term, usually overnight,
borrowing to plug the hole.
The Fed also adds or removes liquidity to keep interest rates in line
with the desired target, which is the job of the New York Fed.
But the shortage of cash in recent days prompted the New York Fed to pump
just more than $275 billion into the short-term market as the interest rates
demanded for overnight lending soared, threatening to break out of the Fed’s
target range.
The central bank cut benchmark lending rates interest rate on Wednesday to
provide a boost to the American economy, but also made some technical
adjustments to help it maintain market rates in line with the range,
including cutting the interest it offers on bank reserves held at the Fed
that are in excess of the minimum required level.
BSS/AFP/HR/1100