Tuesday, September 22, 2009
*NEWS ALERT!* Is The Fed About To Announce An Early Exit Plan?
Are Central Bank officials discussing plans to use so- called reverse repurchase agreements to drain some of the $1 trillion they pumped into the economy?
The staff presented an update on the continuing development of several tools that could help support a smooth withdrawal of policy accommodation at the appropriate time. These measures include executing reverse repurchase agreements on a large scale, potentially with counterparties other than the primary dealers; implementing a term deposit facility that would be available to depository institutions in order to reduce the supply of excess reserves; and taking steps to tighten the link between the interest rate paid on reserve balances held at the Federal Reserve Banks and the federal funds rate. -- Minutes of the Federal Open Market Committee August 11-12, 2009 ~link~
"Fed Said to Start Talks With Dealers on Using Reverse Repos" Bloomberg Report Link
With the reverse repos -- short for reverse repurchase transactions -- the Fed would sell securities to its 18 primary dealers for a specific period, which would decrease the amount of money available in the banking system. If it issues $1 trillion worth of reverse repos, the Fed would be able to use the cash to restore its balance sheet part of the way back to its pre-August 2007 condition.
Those that follow my blog & Itz Pix has played the weaker dollar and rising commodity prices -- gold, silver, copper, & oil. That's because one of the surest bets in the last few years has been that rising U.S. debt would weaken the dollar -- particularly when borrowers were using their money to short the dollar and go long on commodities futures.
This may or may not be mentioned in tomorrow's meeting by the Fed. BUT, this is an important news release from Bloomberg and as I type being discussed on several cable news programs. Stay alerted...more on this tomorrow....