- For the first time in a decade, the Fed auctioned $53.2 billion of repos
- Another one on Wed, the Fed is due to release its policy statement at 1800 GMT
- US stocks open lower while gold is flat
- Bitcoin flat as well but BitMEX CEO says this will trigger BTC’s move to ATH
The Federal Reserve of New York took an unusual step as it announced that it will conduct its first overnight repo operation of up to $75 billion for the first time in a decade.
The US fed auctioned $53.2 billion of “repurchase agreements” or repos, the last time the Fed was forced to step in was in 2008 during the recession.
The agreement allows financial institutions to borrow cash in exchange for government bonds that are crucial to ensure efficient money flows.
“It's unprecedented, at least in the post-crisis era,” said Mark Cabana, rates strategist at Bank of America Merrill Lynch.
“Smells an awful lot like the monetary authority is financing the fiscal authority”
As for why the Fed did a repo.
Earlier this week, cash available to banks for short-term funding needs dried up and interest rates shot up as high as 10% for some loans, more than 4 times the Fed’s rate.
To steady the rates, the Fed injected over $50 billion into the market to prevent borrowing costs from spiraling even higher.
“The Fed won't admit this,” Cabana said, “but it looks and smells an awful lot like the monetary authority is financing the fiscal authority.”
But it wasn’t the only one. The Fed will conduct another one on Wednesday.
The Fed is due to release its policy statement at 1800 GMT. Fed Chair Jerome Powell is then scheduled to hold a news conference half an hour later.
A Crack in the Financial Markets
Fed is getting ready for phase two, to pump money into the system to keep borrowing costs from climbing above the Fed’s target range.
This is evidence of the emergency cracks in the financial markets that raises concern that the Fed could be losing its grip on short term rates.
Meanwhile, oil prices skyrocketed after Saudi Arbain oil facilities were attacked, sparking worries about global oil supply.
High oil prices can lead to inflation.
US stocks opened lower on Wednesday ahead of Fed’s decision on interest rate cuts amidst the liquidity issues in money markets, oil shocks in the Middle East, and more signs that trade war is affecting corporate profits.
The Dow Jones Industrial Average slipped 0.15% to 27,071.42 and the S&P 500 is down 0.20% at 2,999.62.
Bullish For Bitcoin
Physical gold is currently flat ahead of Fed meeting. And similarly, Bitcoin is not showing any action.
At the time of writing, Bitcoin was trading at $10,186 with 24 hours loss of 0.26% as per Coincodex.
However, according to BitMEX CEO Arthur Hayes, Fed’s decision to cut interest rates and inject billions into the market will be the catalyst to push Bitcoin to its all-time high.
“QE4eva is coming. Once the Fed gets religion again, get ready for bitcoin $20,000,” wrote Hayes on Twitter.