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Fed Adds $95.56 Billion in Short-Term Liquidity to Markets

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12/03/2019 | 10:58am EST

By Michael S. Derby

The Federal Reserve Bank of New York added $95.557 billion in temporary liquidity to financial markets Tuesday.

The intervention came in two parts. One was via overnight repurchase agreements, or repos, that totaled $77.8 billion, and the other was via 14-day repos totalling $17.757 billion. The Fed provided all the liquidity that eligible banks sought.

Fed repo interventions take in Treasury and mortgage securities from eligible banks in what is effectively a short-term loan of central-bank cash, collateralized by the securities.

The Fed's interventions are aimed at ensuring that the financial system has enough liquidity and that short-term borrowing rates are stable and consistent with Fed goals, with the central bank's federal-funds rate staying within the 1.5%-to-1.75% target range. The effective fed-funds rate stood at 1.56% on Monday. The broad general collateral rate for repo trading stood at 1.60%, also for Monday.

The Fed has been intervening in markets in the current fashion since mid-September, when short-term rates unexpectedly shot up on a confluence of factors. That said, the Fed has used similar operations for decades to manage short-term rates.

Since the large interventions started, money-market rates haven't been volatile. The Fed is using temporary operations to tamp down any possible wild moves, while purchasing Treasury bills to build up reserves in the banking system. It hopes that by buying Treasury bills it will be able to cut back on repo interventions at the start of next year.

The Fed currently expects to buy Treasury bills through the middle of next year.

Write to Michael S. Derby at michael.derby@wsj.com

Corrections & Amplifications

This item was corrected at 6:37 p.m. ET to show that the Federal Reserve Bank of New York added $95.56 billion in temporary liquidity to financial markets Tuesday. An earlier version misstated the amount as $99.557 billion in the headline.

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