Daily Reverse Repo $2,359.227B - New record

Why are we increasing money supply while tightening like crazy? Am I off base in thinking this, or am I misunderstanding something?

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Like I’m 5 please?

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Banks aren't able to loan out all the money they have so they are parking it at the Fed overnight for interest

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I am not real sure about why this is needed for them, but it seems sketchy.

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Just because you don't understand why the Federal Reserve uses reverse repos doesn't make the process "sketchy."

The Fed uses reverse repos to drain some liquidity out of the financial system overnight. The purpose is to cool the economy and by doing so attempt to cool inflation.

If financial institutions have less liquidity it means they can't be using those funds to make loans to (mainly) large commercial borrowers. The impact is the economy is cooled (slightly) and that's what the Fed wants right now.

The main advantage the Fed has in using reverse repos is that not just commercial banks can avail themselves to buying (over night) some of the securities on the Fed's balance sheet but also hedge funds, insurance companies, pension funds and even money market mutual funds are eligible to use the RRP facility. This means a bigger piece of the financial industry's liquidity can be affected rather than just the commercial banks.

If you have a brokerage account and your un-invested cash is parked in a money market mutual fund and your money market fund is using the availability of the Fed's reverse repo facility, it means you earn a higher rate of interest on your money than if it was simply parked in an overnight bank account. Advantage YOU.

EDIT: The secondary advantage for the economy when the Fed uses RRP's to drain system liquidity instead of selling massive amounts of its balance sheet outright is interest rates on the yield curve are minimally impacted and therefore much less disruptive to the economy as a whole. It's using a fly swatter to kill a fly rather than a sledge hammer.

That's NOT sketchy. It's amazingly simple and straight forward.

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LSURussian

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Where you been! Was worried about you honestly!

Russian, yo!