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| When the Fed cuts the overnight rate, like it did last week overnight borrowings from the Fed are cheaper. These are reverse repo borrowings. The bank pledges treasuries and the fed lends them money. (Technically speaking the banks sell to the Fed, get their $, then contractually buy back the treasury next day at a higher price equal to the overnight rate - hence the reverse repurchase agreement term).
Alternatively, the banks could have sold treasuries for cash, but that doesn't make a good headline. Why do the banks need the liquidity? That is the main question to watch. How healthy is the US economy? | |
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Fed Reserve $125B
