2020: Markets Still Dependent on Fed Liquidity

January 8, 2020 By E.J. Smith - Your Survival Guy

By RedHanded @ Shutterstock.com

Fed liquidity is the grease that’s making this market run. When the grease runs out or fails to work, will the market melt-up come to an abrupt end? This is uncharted territory, which to me means you need to make sure you have your risk tolerance figured out before it’s too late. Michael S. Derby reports for The Wall Street Journal (abridged):

After a dimming in demand for Fed money just after the start of 2020, this week has seen increase operation sizes. On Monday the Fed added $76.9 billion. Analysts at Wrightson ICAP said money markets may see frictional pressure Tuesday. That may explain why demand for Fed liquidity has perked up.

The Fed has been adding significant amounts of short-term liquidity to financial markets since September, when short-term interest rates surged unexpectedly. Then, major banks that normally lend cash short-term to other financial firms pulled back, causing money market rates to go up. Most notably, the federal-funds rate, a key focus of central bank policy, moved above its range.

Fed repo interventions have been used for decades to control short-term rates. The Fed seeks to control the fed-funds rate to influence the overall cost of credit in the economy to accomplish its inflation and job mandates, set for the central bank by Congress.

E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.

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