Why Is the Fed Securing Billions in Bonds?

The Federal Reserve is once again expanding its balance sheet by buying up significant amounts of bonds in the critical short-term “repo” lending market. Some market experts are worried these actions look very similar to the Fed's massive bond-buying program during the 2008 financial crisis—despite the Fed insisting otherwise. Learn more in this episode of USMR Market Insights with Coy Wells.

Why Is the Fed Securing Billions in Bonds? – Video Transcription

Coy Wells: 00:00   

A couple of weeks ago, we discussed the Federal Reserve’s unusual bond buyback program in our video. What is the Repo Market and Why is the Fed Spending Billions on it? Essentially the Fed is purchasing billions of dollars’ worth of treasury bonds, mostly from what is called the overnight repo market. This is in order to prevent short term lending markets, a critical component of the economy, from grinding to a halt. This program started back in September when short term borrowing rates skyrocketed, which threatened the abilities of financial markets as a whole. Since this last video, the Fed has continued to buy billions of dollars’ worth of bonds from the repo market. This has happened as recently as December 3rd when the fed injected $95.5 billion into the financial markets. A little over 77 billion of the dollars went into overnight repo markets. The rest went into markets for 14-day repos. Going forward, the Fed is uncertain how this program will last. While they are currently projected to continue into at least the second quarter in 2020, there is no set end date to the program.

Coy Wells: 01:06   

The meeting minutes have shown that the members of the federal reserve committee are uncertain on what they will do to keep the market stable without these repos in the future. What is particularly interesting about these actions is that Federal Reserve Chairman Powell insists that these purchases are not Quantitative Easing. Quantitative Easing is when central banks purchase treasuries or other securities to inject money into the economy. Most notably, the Fed engaged into multiple rounds of Quantitative Easing after the 2008 financial crisis. Despite the parallels between these actions, the Fed has made it very clear that they do not want to call this Quantitative Easing. Instead, they classify it as balance sheet growth.

Coy Wells: 01:46                   

For more information on quantitative easing and other major stimulus policies, please call the number on your screen to receive U.S. Money Reserve's latest special report, The Big Easing: Are Global Stimulus Policies Burning Out? This free report delves into the facts about how the global economy is showing signs of slowing down. So click on the link below for a free download, and please give us your thoughts in the comments below and share this video. If you're watching us from Facebook and would like to see more of our videos, check out our YouTube channel where we have tons of information touching on all different subjects. I'm U.S. Money Reserve's Coy Wells and thank you for watching Market Insights.