- While mainstream financial news media was busy covering the July 28 FOMC statement and press conference, the Federal Reserve issued a much more consequential second press release that same day.
- The Fed set up a permanent standing repo facility to ensure money markets are never short on emergency liquidity, as they were during the Repocalypse of September 2019.
- There is no reason for the Fed to set up this facility now, when demand for repos is zero.
- Why set up a standing repo facility now then? My guess is they fear another Repocalypse should they even try to taper QE if forced to fight price inflation.
- A standing repo facility will ensure rates stay pinned if tapering QE threatens another liquidity shortage, essentially welding the foot to the monetary gas if they try to even tap the brakes ever so slightly.
For further details see:
The Fed's New Standing Repo Facility Is A Prop For A Staged Fight Against Inflation