The Fed Is Mopping Up Its Own Mess in Reverse Repo
A central bank facility absorbed a record $485 billion of cash on Thursday, showing the Fed’s ability to seize control of the financial system.
The Fed is on cleanup duty.
Photographer: Jeff Haynes/AFP/Getty Images
Over the past couple of weeks, I’ve been tweeting near-daily updates of the following chart, which shows the amount of cash placed at the Federal Reserve’s overnight reverse repurchase facility. Use soared to a record $485.3 billion on Thursday, capping an unprecedented surge:
What I learned is that few people understand what’s going on here. And I don’t blame them. Some assume this is just the U.S. central bank printing more money — after all, the hot topic among Fed officials lately has been about when to start talking about reducing its $120 billion of monthly bond purchases. But it’s actually the opposite: The facility is a place for money-market funds and other counterparties to place excess cash with the central bank in exchange for a 0% interest rate.