US’s Fed Injects US$112B Liquidity to the Markets

The Federal Reserve (Fed) Bank of New York injects US$$111.90 billion to financial markets on Tuesday (11/12) through overnight repurchase agreements totaling $76.94 billion and a 14-day repo totaling $34.966 billion - Photo: Privacy

JAKARTA (TheInsiderStories) – The Federal Reserve (Fed) Bank of New York injects US$$111.90 billion to financial markets on Tuesday (11/12) through overnight repurchase agreements totaling $76.94 billion and a 14-day repo totaling $34.966 billion. Eligible banks sought less liquidity than the Fed was willing to offer.

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 bonds, the Wall Street Jurnal reported. The Fed’s injections are aimed at ensuring that the financial system has enough liquidity and that short-term borrowing rates remain well-behaved, with the central bank’s federal-fund rate staying within the 1.50 percent to 1.75 percent target range. The effective fed-funds rate stood at 1.55 percent on Friday.

Recent Fed market interventions aren’t designed to serve as a stimulus and so far aren’t being driven by market distress. While the sizes of recent operations are large, the practice of adding and subtracting liquidity from short-term markets to manage short-term interest rates goes back decades.

Meanwhile, President Donald Trump used his pulpit before the Economic Club of New York on Tuesday to bash the Fed for what he sees as its hesitation to lower interest rates and blamed the central bank for capping gains in the United States (US) economy and the stock market.

The president noted that since his election, the S&P 500 is up more than 45 percent, the Dow Jones Industrial Average is up over 50 percent and the Nasdaq Composite is up 60 percent. But those numbers could be way higher, Trump said, if it weren’t for the reluctance of the Fed.

“And if we had a Federal Reserve that worked with us, you could have added another 25 percent to each of those numbers, I guarantee you that,” Trump said. “But we all make mistakes, don’t we? Not too often. We do make them on occasion,” the president added

Trump also contended that the Fed should continue to cut interest rates to make the US more competitive in the global market.

“We are actively competing with nations who openly cut interest rates so that now many are actually getting paid when they pay off their loan, known as negative interest,” he said. “Whoever heard of such a thing? Give me some of that. Give me some of that money. I want some of that money,” he adds.

The president lambasted Fed Chair Jerome Powell throughout 2018 and into 2019 as the Fed continued to tighten monetary policy and raise interest rates, which it typically does when it tries to curb inflation and ease the pace of expansion to prevent the economy from overheating.

Criticism of the Fed is unusual from a sitting president, with prior presidents taking a softer tone or refraining from weighing in on the direction of the central bank’s policies. In breaking with that tradition, Trump has blamed the Fed and its leader for swings in the stock market and undermining trade deliberations with Beijing.

“I think the Fed is making a mistake. They are so tight,” the president said in October 2018. “I think the Fed has gone crazy.”

The Fed instituted nine quarter-point hikes between Dec. 16, 2015, and Dec. 19, 2018, the last time it raised rates. It has cut rates three times in 2019 in what it characterized as a “midcycle adjustment.”

To be sure, the US stock market has soared since Trump’s victory over Hillary Clinton in 2016, with the S&P 500 up more than 40 percent, AP reported. The broad market index touched a new all-time high on Tuesday as investor concern over the US-China trade war eased. Though investors aren’t certain whether the two nations are close to a permanent deal, stocks have rallied to records in recent weeks in expectation of a sort-of trade truce.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com