For the first time since the financial crisis, the US Federal Reserve has again supplied the money market with billions of dollars. A short-term transaction provided $ 53.15 billion to banks. This was announced by the Federal Reserve (Fed) on Tuesday (local time).
This Wednesday is to follow another overnight repo business, as the intervention in the jargon is called. Banks borrow money from the Fed for a short time, depositing government bonds and other securities as collateral. There has been no reason to do so over the past ten years, as the banks had sufficient liquidity.
As a possible reason for the liquidity shortage experts suspect that companies deducted a lot of money to make their quarterly payment of corporate taxes. In addition, banks are increasingly buying new government bonds. Due to the high US budget deficits, the supply of new US government bonds is currently high.
Interest rates have risen to more than ten percent
In addition, reserves parked by banks at the Fed were as low as they had been since 2011: they recently totaled $ 1.47 trillion, about 50 percent less than the five-year peak.
As a result, interest rates in the US interbank or money market, where banks borrow money from each other, skyrocketed. The interest rate had risen to ten percent on Tuesday. That's four times the 2.25 percent cap that the US Federal Reserve seeks to achieve with its monetary policy. Due to the injection of funds from the central bank, the interest rates temporarily fell back to zero, before they ended up at 2.0 percent.
The Fed's key interest rate, currently 2.0-2.25 percent, sets the range at which banks are supposed to trade surplus liquidity on the money market. The politically independent Fed is currently facing calls for much looser monetary policy from the White House. President Donald Trump considers interest rates too high. He asks for a reduction of the monetary policy key to "zero or less".