Just in time for the inauguration: The Fed is deliberately tightening liquidity in the system

by
Sharing is Caring!

By using tools like the reverse repo program, the Fed can absorb excess cash from financial institutions, effectively reducing the money supply. This helps to control inflation and keep short-term interest rates in check. Additionally, the reduction of the Bank Term Funding Program (BTFP) suggests that the Fed is scaling back emergency liquidity support.

  • Reverse Repo Program: This is a tool used by the Federal Reserve to manage short-term interest rates and control the supply of money in the financial system. In a reverse repo, the Fed sells securities to financial institutions with the agreement to repurchase them later. This temporarily reduces the amount of money in circulation, which can help keep short-term borrowing rates within the target range set by the Fed.
  • Bank Term Funding Program (BTFP): This is a separate program introduced by the Federal Reserve to provide emergency liquidity to banks, particularly during times of stress (like after the failure of a major bank). The BTFP allows banks to borrow from the Fed using high-quality collateral, such as Treasury bonds, to meet short-term liquidity needs. The Fed has been scaling this program back as financial stability improves.
See also  House approves funding bill, breaking promises on spending splits and debt ceiling demands.





See also  Oh, sure, another bull run sounds totally likely with sky-high stock prices and a crumbling economy. Santa comes to town or this house of cards explodes at all time highs?