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- The Federal Reserve closed the week with yet another attempt to slow down money markets and an announcement that more injections were coming.
- The central bank pumped a new $ 75 billion into the financial markets on Friday and announced a plan for further repo operations.
- This week marked the first time the central bank had taken such steps since the global financial crisis 1
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The Federal Reserve ended the week with yet another attempt to slow down money markets and an announcement that more injections were coming.
After pumping another $ 75 billion into financial markets on Friday, the New York Federal Reserve announced it would continue special operations in an effort to keep interest rates in its intended range. Short-term interest rates had shot up to 10% at the beginning of the week, threatening to disrupt the bond market and the overall lending system.
The central bank said they would offer a series of daily and 14-day repurchase agreements, or repos, over the coming weeks for a total of at least $ 30 billion each. It also announced daily repos for a total of at least $ 75 billion each through October 10.
After this time, policy makers planned to "carry out operations as necessary to maintain the federal fund price in the target area, the amount and timing of which have not yet been determined."
In three separate market operations Tuesday through Thursday, the central bank had offered a total of $ 203 billion in repo. This week marked the first time the central bank had taken such steps since the global financial crisis 10 years ago.
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There was debate as to the exact reason the amount of cash banks available for short-term financing needs dried out early this week. But the shortage came after companies had to pay quarterly tax bills at the same time as the Treasury issued billions in new bonds.
The last action came days after the policy-setting Federal Open Market Committee reduced the benchmark rate to a target range between 1.75% and 2%. Fed chairman Jay Powell said Wednesday that the repo operations had been temporary and that prices were expected to return to target levels.
"The funding pressure in the money markets was heightened this week, and the effective federal fund rate rose above the top of the target range," he said. "While these issues are important to the functioning of the market and market participants, they have no implications for the economy or attitude to monetary policy."