Matt Levine's explanation of what happened is considerably less sensationalized. Take a look at the second item of his column today [0]. It's too long to quote and doesn't lend itself to an easy excerpt, but here are the facts that he quotes, from Bloomberg [1]:

> A sudden surge in the overnight rate on Treasury repurchase agreements that began on Monday continued Tuesday -- with the rate opening at 7%, according to ICAP. …

> What happened was an unfortunate coincidence -- just as companies were withdrawing cash from money markets to pay corporate tax, a glut of new bonds appeared on the market as the U.S. government sold some $78 billion of 10- and 30-year debt last week.

> With just $24 billion of bonds maturing in the period, this became one of three occasions this year when the imbalance between debt redemption and cash needed to buy new Treasuries exceeded $50 billion.

Again, if those paragraphs don't obviously relate to the overnight lending market, read his column for context.

[0]: https://www.bloomberg.com/opinion/articles/2019-09-17/wework...

[1]: https://www.bloomberg.com/news/articles/2019-09-17/it-starts...

This is a better publicly available recount of events:

https://www.ft.com/content/345da16e-d967-11e9-8f9b-77216ebe1...

This is a pretty technical subject with a lot of moving parts so it's hard to really have a full understanding of things. This is not a one-off event and can easily happen in the future under similar or different circumstances unless the Fed makes some changes (that they've been seen behind the curve on). This is easily dismissed right now but this happened under relatively calm market conditions. When stuff like this happens under more volatile markets stuff breaks really quickly.

Isn't this working as intended? Where else does the FED actually "enforce" its short term fed funds rate? I mean how else the current 2.00-2.25% rate is forced onto the financial system? Why else would anyone even care about what the FED funds rate is?

In my home country the central bank rate is enforced by providing central bank deposits and central bank loans, available in unlimited quantity for commercial banks. When the market gets cash congested (like here) banks just start tapping the infinite central bank credit line, at central bank rate. Similarly if the market gets flush with cash banks just deposit it at the central bank. Ergo the market interbank lending rate is always between the central bank deposit and credit rates.

The fact that it doesn't normally happen is like when most purchased options are not exercised but sold back. Yeah, sure, but if there was no possibility of exercising them then options would have no value. So it has to be there, then we can safely almost never use it.

> "The Fed won't admit this," Cabana said, "but it looks and smells an awful lot like the monetary authority is financing the fiscal authority."

Frightening... if true. I hope Matt Levine's explanation (cited by mrosett) is the correct one.

But also, if short-term rates are spiking (even if it's a rather different type of shrt-term rate), does that mean that the Fed was incorrect to drop the rate at its last meeting?

Another $75B injection planned for tomorrow: https://www.ft.com/content/2c11a972-d941-11e9-8f9b-77216ebe1...

Something I've always wondered about overnight lending. All the money is basically repayable at one point in time, the start of business in the morning. What happens if theres a problem? What happens if a banks systems crash and that money can't be repaid, presumably having knock on impacts on the next days overnight lending.

I'm not suggesting it would be an end of days scenario, just curious.

Is there a simple model of this - a script, spreadsheet or something - or in fact is there a open government set of figures showing the situation

I know it's probably well known but i am looking for a modern version of the old coloured liquids in tubes

> On Tuesday morning, the NY Fed launched what's called an "overnight repo operation," during which the central bank attempts to ease pressure in markets by purchasing Treasuries and other securities.

It was my (perhaps mistaken?) understanding that the Fed operates an overnight repo facility regularly - like, every night. It reads like CNN is reporting this like an exceptional emergency maneuver. Is the newsworthiness in fact just the size of the liquidity injection, and CNN is a little confused about what the ON repo does? Or am I mistaken about the Fed making overnight repo agreements regularly?

So much for unwinding the fed ballance sheet.

Originally read this headline as "NYFD rescues overnight lending market with $53B" and momentarily thought the calendar photoshoots were more than just a joke.

Hey, fiat money. Press a button, money appears. I just hope we can stop the attempts at politicizing the Fed, else we are doomed shortly.

When someone asks how does inflation increase with increasing deficit?

This is the answer. Money printed out of thin air to buy bonds.

Bye bye affordability if this continues.

Any source that is more neutral reported on this?

QE4?

To summarize: some banks were short dollars. Instead of forcing those banks to compete for more deposits (offer interest rates above inflation), the fed stepped in and conjured a bunch of new money into existence. By doing so, banks were able to meet their obligation without needing to attract new deposits - thereby robbing people who worked for their dollars from receiving higher interest rates.

Not enough liquidity at home, can I get some money to cover that Fed?

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Loud autoplaying video.

Just a couple of underestimations, it did its job expediently.