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ABCP Collapse Forces Fed Funds Down, Fed Follows – WSE Pro

The Fed pulled a whopping $17 billion in cash out of the market on a day when the Treasury was also settling $2 billion in net new paper. The Fed added $5 billion in 14 day, $11 billion in 7 day, and $5 billion in overnight repos, against a huge $38 billion in expirations in order to keep the Fed Funds rate at 5%.Otherwise who knows how low it would have dropped? The fact that Fed Funds rates and T-bill rates have fallen is not a sign of Fed ease, it is a sign of a dysfunctional financial system, with capital flight from the CP market rushing into T-bills and supposedly safer CDs, pushing up bank reserves and pushing demand for Fed Funds down. The Fed will follow that flow and rubber stamp the lower market rate on Tuesday. But it doesn’t mean that the Fed is easing. Click here to download complete report in pdf format (Professional Edition Subscribers).Try the Professional Edition risk free for thirty days. If, within that time you don’t find the information useful, I will give you a full refund. It’s that simple. Click here for more information.

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  1. fredw

    I agree with you Lee… a cut of the Fed Fund rate to 5.00 ( assume that ) is merely a confirmation of where the Fed Fund rate has been for the past month. I would expect some further movement on the discount rate , another 25 bps. My observation is that funds were made available by the Fed , ECB and BOE to assist in the CP and ABCP coming due , but again , I don’t view that as increasing money supply or adding liquidity per se. BTW , did you note additional supplicants at the Fed discount window on Wednesday ( was that a CP issue ? )

  2. Lee Adler

    I did see that, and I noted that about 1/4 of it was from the Cleveland Fed, probably by the crappy National City, the stupidest bankers on Planet Earth.

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