Holy Moly, Fed’s Reverse Repos Spike to $756 Billion, Undoing 6 Months of QE. In Opposite Direction, Fed’s QE Pushes Assets Past $8 Trillion, by Wolf Richter

An introduction to Twilight Zone central banking. From Wolf Richter at wolfstreet.com:

Yesterday, the Fed raised its interest rate on overnight reverse repos, and this morning, a giant sucking sound of cash.

The Fed sold a record $756 billion in Treasury securities this morning in exchange for cash via overnight “reverse repos.” This was up by a stunning 45% from yesterday’s operations of $521 billion. There were 68 counterparties involved. Yesterday’s overnight reverse repos had matured and unwound this morning, to be more than replaced by today’s tsunami.

During the period starting in 2014 and then abating with the Fed’s quantitative tightening in 2018, the US financial system was also creaking under a massive amount of cash following years of QE, and the Fed drained some of that cash out via reverse repos. There too were spikes, but they came at the last day of the quarter, and particularly at the end of the year.

This time, overnight reverse repos (RRPs) spiked during the quarter, and today they spiked into the stratosphere. Yesterday, the Fed had hiked the RRP offering rate to 0.05% (from 0.0%), and this morning, a giant sucking sound of cash (please forgive me, Ross). The RRP balance of $756 billion drains over six months of QE from the market:

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