Since well before the onset of Covid-19, the U.S. Federal Reserve had initiated monetary easing policies and from then on, the M1 Money Stock supply skyrocketed to levels never-before-seen in history. This weekend reports disclosed that the Fed has started to taper quantitative easing (QE) when it removed $351 billion from the market last week. This Tuesday the Fed revealed it completed a reverse repo operation for $432.9 billion.
On May 22, Bitcoin.com News reported on the Federal Reserve initiating overnight reverse repos (RRP) to the tune of $351 billion. Tuesday’s recently reported reverse repo shows a 23.07% increase.
RRP facility operations are the opposite of QE, as the Federal Reserve removes M1 from the system by selling Treasuries back to the market. The most recent overnight operations seem to be only Treasuries, as no purchases of mortgage-backed securities (MBS) have been mentioned.
The Federal Reserve followed the $351 billion RRP operation with $369 billion on Friday and $395 billion on Monday.
The U.S. central bank revealed on Tuesday $432.9 billion was removed from financial markets.
Since the Federal Reserve has been on a spree of reverse repo operations, speculators think the central bank will continue to increase the M1 removal. “Fed Reverse Repo 432.955 Billion from 48 counterparties Repo market is still broken, broken. We’ll break 500 billion tomorrow,” one person tweeted on Tuesday.
On Monday, Scott Skyrm, executive vice president in fixed income and repo at Curvature Securities commented on the reverse repo situation to Market Watch columnist Joy Wiltermuth. “Why are they going to the Fed?” Skyrm asked. “Either there is too much cash or not enough collateral. It’s two sides of the same coin,” he added.
“A BTIG Research team led by Julian Emanuel described the situation like a game of cat and mouse,” Wiltermuth’s report concludes.
In 2020 alone, estimates say the U.S. central bank’s 2020 M1 increase eclipsed two centuries of USD creation. It is estimated that 24 to 30% of all USD was created in 2020 and Q1 2021.
What do you think about the Fed’s reverse repos during the last few days? Let us know what you think about this subject in the comments section below.