Getting out of three trillion August 27, 2013 at 7:32 pm

What do you do if, in round terms, your balance sheet is three trillion dollars bigger than you want it to be? (Or two. Whatever.) Get into the reverse repo market in a big way, of course. Which is exactly what the FED is doing, as the WSJ spotted:

In the July minutes of the Fed meeting released Wednesday, officials discussed a proposal to introduce a so-called reverse repurchase program

That would be a fixed-rate, full-allotment reverse repo programme, to flesh out the details and correct the WSJ’s lamentable spelling. The idea is to give the FED better control over that key monetary policy transmission mechanism, the repo market, by allowing them to dribble out collateral as needed to meet their target repo rate (or more precisely spread of repo rate over FED funds).

Just one question. If Barclays are right about the impact of recent regulatory proposals on the repo market, might the FED be picking up a new tool just when it is about to become less effective?

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