Overnight lending rates spiked as high as 10% in the past few week.The Fed blamed it all on end-of-quarter financing needs.
The Fed then made some emergency "overnight" and "short-term" repos to get through the end-of-the-quarter.
Following the emergency actions to suppress interest rate spikes, Philadelphia Fed President Patrick Harker explained "This is not QE4. This is not a monetary policy tool."
WTH is It?
If it's neither QE nor a "monetary policy tool", then what the hell is it?
Looks Like QE, Stinks Like QE
The Fed's balance sheet is growing again.
Harker explained QE growth will be "organic".
Actions prove otherwise
Is the Third Quarter Over?
Inquiring minds may be asking "Is the third quarter over?"
That seems to be a simple question, but let's check a calendar to be sure.
Yep. It appears the third quarter is over.
So let's check on those Repo Actions to get us though the end-of-quarter financing needs.
Fed Repo Actions Overnight and Term
The overnight operations replace each other. One needs to add up what does expire.
I come up with 30+60+60+75 = $195 billion.
Not Monetary Policy
In regards to Harker's statement "not a monetary policy tool" please note the repo landing page link name:
Note that end-of-quarter needs stretch all the way until October 11. But let's not stop there. Let's investigate Term Repo operations.
Scheduled Overnight and Term Repos
It appears we have new definitions of "overnight" and "end-of-quarter".
End of third-quarter needs stretch all the way until November 12. Fancy that.
The $30 billion term repo that expires on October 8 (first repo chart) will be replaced by a $45 billion term repo on October 8 (second repo chart)
But also note that expiring a total of $120 billion in repos will expire October 10 and 11. Those will be replaced by only $90 billion in new repos on those dates.
If it played out exactly that way there would be a small $15 term repo reduction on October 11.
However, we also need to add in $75 billion "overnight" every day from October 7 through November 4..
At Least Kicker
Please note the "At Least" kicker. The first chart has an explicit dollar amount.
All items in the second chart say "at least".
At Least $250 Billion Through October 17
The overlapping term repos between October 8 through October 15 all expire no sooner than October 17.
I count 45+45+45+35 in term repos + $75 billion in continual "overnight" repos = $250 billion (At Least)!
On October 17, at least $45 billion will expire to be replaced by at least $35 billion.
Then on October 22, at least $45 billion will expire to be replaced by at least $35 billion.
I just came across this Tweet.
Low and behold ...
Fed Totally Clueless
I believe you get the idea here:
The Fed is totally clueless about allegedly "end-of-quarter" needs.
Wolf Richter made this comment.
I just spoke with Wolf on the phone.
The basis of his claim is that repos have been under-subscribed. However, he admits my number is correct if the subscriptions are taken in full.
I now suspect we are both wrong, but in different directions, and the answer will be somewhere between "most will unwind" and increase to $250 billion.
Both of us think the very act of offering more than needed may have calmed the markets.
Also, we both agree that a number of financial institutions are using overnight funding to fund day-to-day operations, and someone got caught with their pants down when rates started to rise.
When trust in those institutions failed, rates shot up to as much as 10%.
As Much As It Takes
For now, the Fed has offered "as much as it takes" for as "long as it takes".
That's what's become of ECB policy. For discussion, please see What the Hell is the ECB Doing?
But let's not call any of this QE nor monetary actions. Let's call it Necessary Tiddly Winks.
Meanwhile please note that the Fed has Recession Tools, Promises to Use them Quicker Next Time.
Mike "Mish" Shedlock