Federal Reserve Engages in $500 billion in Repurchase Agreements—Pledges $10 Billion to Act as a back stop for Commercial Paper Market

The Federal Reserve, due to the current crisis caused by the cornavirus, has decided to engage in some aggressive monetary policy to boost the economy. First, they are seeking to acquire repurchase agreements(repos). These agreements have been discussed on this blog in detail. See here: http://robertwilliamsjr.com/repurchase-agreements-are-on-the-rise-who-cares-you-should

Secondly, the Fed placing forward $10 Billion to act as a backstop to the Commercial Paper market. Both measures are supposed to help in the liquidity of the banks that have commercial paper stagnated on their books.

With a Repo, the Fed actually purchases the debt from the banks, then exchanges that for cash. The banks will agree to buy back the debt at a later date. In the meantime, the banks’ balance sheet is strengthened thanks to the injection of cash.

My assessment: More cash in the system, more inflation. A higher back Commercial drop: A moral hazard.

Read more here

https://www.thestreet.com/investing/federal-reserve-sets-commercial-paper-backstop-dollar-gains

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