When this reaches the top end, it means demand for $ is strong👈🏻
![](https://pbs.twimg.com/media/EEtigvGU0AAMdoo.png)
Means demand for USD up👈🏻
![](https://pbs.twimg.com/media/EEtjTF1U0AAUfaq.png)
![](https://pbs.twimg.com/media/EEtjTF8UwAA8TBq.png)
![](https://pbs.twimg.com/media/EEtkZJ9UUAE2qJf.png)
Overnight repo did that 👇🏻(demand for $high). The FEd steps in
![](https://pbs.twimg.com/media/EEtk7u3U0AA_1NQ.png)
The NYFed says it will LEND 75bn for those that qualify & the kind of collateral it'll accept (treasury, agency, MBS).
This happened👇🏻& 53.15bn lent
![](https://pbs.twimg.com/media/EEtljSNU4AE08OB.png)
Let's zoom out a bit to talk beyond the short-term liquidity squeeze & focus on Fed balance sheet, which is 3.817trn down from peak of 4.56trn or -743bn
Fed has lots of USTs & MBS & reserves 👇🏻👇🏻
![](https://pbs.twimg.com/media/EEtnWiiVUAAxHva.png)
This is the reverse of what it did last night - by selling assets to the market, it takes $ from the system. How much? Well -743bn 👇🏻👇🏻
![](https://pbs.twimg.com/media/EEtn_RAUcAAc_ro.png)
In terms of UST, reduced owning -365bn 👇🏻👇🏻👇🏻
![](https://pbs.twimg.com/media/EEtokIlUYAApXCj.png)
👇🏻👇🏻👇🏻
![](https://pbs.twimg.com/media/EEtpS6BUwAElTE8.png)
After the financial crisis, the Fed LOWERED RATES TO ZERO (white line show upper bound at 0.25% & lower bound 0%).
And it also BOUGHT ASSETS through what we call QUANTITATIVE EASING 👇🏻👇🏻
![](https://pbs.twimg.com/media/EEtqG5nVAAM-rvG.png)
Notice that President Obama had easy money both his terms.
JYEL raised rates 25bps in 2015, 25bps 16, 75bps 17
![](https://pbs.twimg.com/media/EEtrgz6U4AAqFO9.png)
So the -743bn of reduction & also rates going 1.75% to 2.5% & now 2.25% happened mostly during 2018 & H1 2019👇🏻
![](https://pbs.twimg.com/media/EEtsNoYUwAAj4Vv.png)
Markets expect the Fed to cut rates by 25bps & also more in December by 25bps. This takes the upper bound to 2% tomorrow & 1.75% end 2019.
Why? Many reasons. But let me quickly name them...
*Price of USD (rates at 2.25%) HIGHER than other econs as they CUT RATES & so demand for USD strong too
*USD too strong so global lending 📉(risk taking📉)
*US govie issuance 📈further squeezes liquidity
So what?
Let's talk about this!
![](https://pbs.twimg.com/media/EEzFxmGVAAEBDFK.png)
Talked about repo, which is short-term collateralized lending (days). Meaning, the Fed GIVES MONEY & takes ASSETS at a rate. Upper bound =lending
![](https://pbs.twimg.com/media/EEzGR4zVAAA9IF1.png)
This is an equivalent of WITHDRAWING MONEY or DEPOSIT RATE for qualifying institutions.
RRP is 1.7% so dropped by 30bps last night 👇🏻
![](https://pbs.twimg.com/media/EEzGo9gUUAE_ZZ3.png)
![](https://pbs.twimg.com/media/EEzHeN6VUAEwZ9C.png)
![](https://pbs.twimg.com/media/EEzH_8-UEAEbhDV.png)
OK, for reverse repo or otherwise as collateralized DEPOSITS was USD18.9bn (treasury) & rate was 2% (will be lowered by 30bps to 1.7%)
The repo, or lending rate, was higher at 2.2% for Treasury👇🏻
![](https://pbs.twimg.com/media/EEzJDKTUEAA8Gtl.png)
![](https://pbs.twimg.com/media/EEzJDJGVAAAO0j0.png)
This is different than quantitative easing (QE) because the Fed outright buys assets (treasury, mortgage backed securities) & to influence LONGER-TERM RATES. Key