The Fed’s reluctant decision to flood the overnight market with cash in the coming months was surely a surprise, even for monetary policymakers. As explained in the last article, the run-up in repo rates of September was no surprise to market veterans. Repo run-ups around statement dates are common and not unexpected by the trading community. Undoubtedly, this run-up was not a surprise to Fed officials.
Thus, the Fed did not intervene during the early days of the repo eruption. The surprise was not the eruption of repo rates; the surprise instead was the