The Fed Does Not Lead — It Follows

Jim Mosquera
Jim Mosquera
Author and Speaker •

The Fed's been active this week in overnight markets. Why? The Federal Reserve Bank sets the discount rate, which is a very narrow interpretation of short-term rates. Treasury Bill and Eurodollar markets move ahead of Fed discount rate action.

The Fed has intervened several times this week, injecting billions into the financial system when overnight Repo rates left the Fed's prescribed lanes called the Federal Funds Rate (FFR).  The FFR is the rate banks charge each other when they need overnight loans to meet Fed minimum reserve requirements.  Repurchase Agreements or Repos typically involves an exchange of treasury securities for a short-term infusion of cash to the borrower.  The Repo rate and the FFR should be within close proximity.  This week they were not and only Fed action "normalized" the Repo market.

Is the Fed really in control?  Is this the outer edge of the unraveling of the #omnibubble? You be the judge in this article.

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