Fed Goes Crazy, Will Continue to Pump Billions Every Day till Oct 14
The New York Federal Reserve will continue its overnight repurchase (repo) operations through October as its attempt to soothe market instability from earlier this week.
Short term rates spiked as much as 10% overnight Monday amidst a shortfall in funding. As such, the Fed responded with a series of liquidity injections into the market to prevent further capital droughts.
Economists say a number of conditions contributed to dry up liquidity in the banking system, including a surge in government debt, and quarterly corporate tax payments.
Banks borrow regularly for very short periods to ensure their daily cash reserves do not follow below their required level. But with demand increases the interest rates.
The New York Fed jumps in to add or remove liquidity to keep the interest rates at the desired target.
Cash shortage in recent days drove the Fed decided to pump funds in the short term repo market as rates soared.
The Fed will offer three 14-day term repo operations for an aggregate amount of at least $30 billion each. It also announced daily overnight repo operations of at least $75 billion each, until Tuesday, October 10, 2019.
After this, the New York Fed plans to
“conduct operations as necessary to help maintain the federal funds rate in the target range, the amounts and timing of which have not yet been determined.”
And Bitcoin fixes this — a currency that is not controlled by the central bank and can't be printed out of existence.
— CryptoCompetent ₿ ➐ (@CryptoCompetent) September 20, 2019
This money printing, according to Arthur Hayes’ prediction will be the catalyst to take Bitcoin to its all-time high.
Meanwhile, US stocks went lower, keeping the Dow Jones Industrial Average (down 0.26%) and S&P 300 (slid 0.27%) shy of all-time highs.
“We believe high October volatility is more than just a coincidence,” said Goldman’s equity derivatives strategist John Marshall. “We believe it is a critical period for many investors and companies that manage performance to calendar year-end.”
“Not only are earnings day moves rising relative to average daily moves, but October tends to be the quarter with the largest absolute earnings day moves for U.S. stocks,”