Re: Fed pumps $41 billion

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Posted by warren mosler (12.151.121.149) on 00:38:02 11/02/07

In Reply to: Fed pumps $41 billion posted by Michael Norman

: Warren,
:
: Why did the Fed add this liquidity?

don't know exactly- first i've seen it. but it's always to 'offset operating factors' and is never a change in anything that has any real economic consequences.

could have been some banks long in their fed accounts and some short due to wire issues or failure to lend to each other in the fed funds market, for example.

the banks short would borrow at the discount rate (and drive up fed funds higher than the fed's target rate) and thereby drive up the fed funds rate in the process, if the fed didn't alternatively lend to them at the target fed funds rate via open market operations.

it's all about the interest rate and not the quantity of funds in the reserve accounts.

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Subject:	Re: Fed pumps $41 billion
Comments:	: : Warren, : : : : Why did the Fed add this liquidity? : : don't know exactly- first i've seen it. but it's always to 'offset operating factors' and is never a change in anything that has any real economic consequences. : : could have been some banks long in their fed accounts and some short due to wire issues or failure to lend to each other in the fed funds market, for example. : : the banks short would borrow at the discount rate (and drive up fed funds higher than the fed's target rate) and thereby drive up the fed funds rate in the process, if the fed didn't alternatively lend to them at the target fed funds rate via open market operations. : : it's all about the interest rate and not the quantity of funds in the reserve accounts.
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