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Non-Tech : Auric Goldfinger's Short List
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To: RockyBalboa who wrote (4435)1/3/2000 4:20:00 PM
From: Sir Auric Goldfinger  Read Replies (2) of 19428
 
DJ backs Auric up: "The Fed Taketh Away: Y2K Cash Has To Come Out Of Banks. NEW YORK (Dow Jones)--The Fed giveth and the Fed taketh away - just as long as it doesn't take away too fast for the money markets' own good.
Hoping to avoid a spike in inter-bank lending rates as about
$35 billion in "repurchase agreement" loans from banks came due,
the Federal Reserve Monday gave $8.99 billion of that cash back
to banks in form of another overnight repurchase agreement.
That still leaves about $115 billion in Fed "repos" outstanding
with banks - another $45 billion of which will expire by Jan.
7. Remaining operations will nearly all run off in the final weeks
of January.
After adding all those billions to the banking system in the
weeks before the new year to avoid problems from a potential year-2000
run on cash, the Fed now needs to pull most of that money back
from the dealers and interbank lending market.
That task isn't going to be easy, though. The Fed will have
to time its moves so that the giant sucking sound of reserves
leaving the system doesn't cause interest rates to spike.
"The desk's main task over the next couple of weeks will be
to fine tune the supply of reserves as the mountain of extended-term
RPs runs off," said Louis Crandall, chief economist at R.H. Wrightson
& Associates.
It's not clear how intensive that "fine-tuning" will have to
be.
The Fed must gauge just how much money it needs to keep in
the system to keep interbank lending rates near its 5.5% target.
This is the Fed's so-called "add need."
"Nobody knows how quickly the add need will retreat, but our
estimates suggest that the decline in the add need will roughly
match the run-off of the Fed's RPs over the first 10 days of the
month," said Crandall.
Monday marked the first test of that gauge. The roughly $35
billion in repos running off the Fed's books was one factor that
helped to push Fed funds well above target to 5.875% - regardless
of the total amount of cash still sloshing around in the system.

But another factor to consider is the system's temporary need
for cash due to the high volume of financial market transactions
Monday - a typical phenomenon on the first day of each new year.

"It's hard to tell just what the add need is, given the fact
that the markets are jumping off the starting block today," said
a Fed funds trader at an inter-dealer broker.
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