The short-term battle for the US dollar ended, with the DXY falling just over 10% and the number of Fed retirement operations (retreats) falling. In a repo, a party sells a security (for example. B a cash security) and then buys it at a higher price on a predetermined date. Deposits are an important source of short-term liquidity for financial institutions and correspond to loans with economic guarantees. For custodian banks (such as banks), another important source of short-term liquidity is the federal funds market, where they lend and each other bank reserves. The interest rate in this market, the Federal Funds Rate (FFR), is the main objective of the Fed`s monetary policy. Since these private markets are similar, their interest rates are usually very close. What is a retreat? A retirement operation (repo) is a form of short-term borrowing. This insight examines the Federal Reserve`s (Fed) recent intervention in the repo market (repurchase agreement) in response to a sudden and brief rise in repo rates to nearly 10% (see Figure 1). Sources:1. Conseil des gouverneurs de la Réserve fédérale (États-Unis), Assets: Other: Repurchase agreements: Wednesday Level [WORAL], retrieved from FRED, Federal Reserve Bank of St. Louis; fred.stlouisfed.org/series/WORAL, 26 Décembre 2020.2.
Board of Governors of the Federal Reserve System (US), Trade Weighted U.S. Dollar Index: Broad, Goods and Services [DTWEXBGS], retrieved from FRED, Federal Reserve Bank of St. Louis; fred.stlouisfed.org/series/DTWEXBGS, 26 Décembre 2020.3. Conseil des gouverneurs de la Réserve fédérale (États-Unis), Taux de défaillance sur tous les prêts, toutes les banques commerciales [DRALACBS], retrieved from FRED, Federal Reserve Bank of St. Louis; fred.stlouisfed.org/series/DRALACBS, 26 Décembre 2020.4. Banque fédérale de réserve von St. Louis, Velocity of M2 Money Stock [M2V] appelé par FRED, Federal Reserve Bank of St. Louis; fred.stlouisfed.org/series/M2V, 26 décembre 2020.5.
Board of Governors of the Federal Reserve System (US), Effectif Federal Funds Rate (FEDFUNDS), appelé par FRED, Banque fédérale de réserve de Saint-Louis; fred.stlouisfed.org/series/FEDFUNDS, 26 décembre 2020.6. Wilshire Associates, Wilshire 5000 Price Index [WILL5000PR] appelé par FRED, Federal Reserve Bank of St. Louis; fred.stlouisfed.org/series/WILL5000PR, 26 décembre 2020.7. Board of Governors of the Federal Reserve System (US), 10-year-treasury Constant Maturity Rate (DGS10), appelé par FRED, Federal Reserve Bank of St. Louis; fred.stlouisfed.org/series/DGS10, le 26 décembre 2020. For monetary policy, the Fed has three options to ensure ffr stability: for this way, a trader sells securities to investors overnight and agrees to buy them back the next day at a premium. The premium in the price is the implicit overnight rate. Like the Great Financial Crisis of 2008, an insolvency crisis is typically followed by a liquidity crisis. Once the liquidity crisis is over and dusted off, the insolvency event looms. In this context, it is important to keep in mind that, in a debt-based monetary system, there is always more debt than money.
There is no evidence that the recent increase in repo rates was caused by panic; Instead, it was caused by a temporary increase in the demand for cash and a decrease in the supply of bank reserves. . . .