Implications of Change in Fed's Repo Purchase Policies

[James Keenan]

For the Fed watchers amongst us ... What is your take on this?

"Statement Regarding Standing Overnight Repo Operations", December 10 2025.

... which I saw because Matt Stoller is discussing its ramifications in his blog this morning ("Monopoly Round-Up: Trump Is About to Take Control of How Money in America Works").

[Jay Mills]

Jim,

First, I love these shares.  As someone learning his way through these materials it is quite helpful.  I did ask ai to synthesize this for me and it summed it up as the following:

Together, the two articles show a financial system where liquidity is effectively guaranteed, but access to that liquidity is highly selective.

The New York Fed’s policy update formalizes the Fed’s role as a permanent backstop for short-term funding markets. By offering unlimited overnight repo at a fixed rate, the Fed ensures interest-rate control and prevents funding stress from spreading. This is no longer an emergency measure; it is standard infrastructure that stabilizes modern finance.

Stoller’s analysis highlights the implication of that infrastructure: institutions with direct or indirect access to the Fed operate with a built-in advantage. Large banks and financial intermediaries can rely on continuous, low-cost funding, which shapes risk-taking, consolidation, and political power. The key constraint in the system is not the availability of money, but who is close enough to the central bank to access it.

The core takeaway is that modern banking is no longer governed by scarcity of liquidity, but by institutional design and access. The unresolved issue is not how money markets function, but how the authority that stabilizes them is governed and whose interests it ultimately serves.

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[Warren Mosler]

Glad it's coming to the surface after 35 years. 

;)

Warren Mosler

Valance Company, Inc.

1215 King Cross 

Christiansted, USVI  00820

340 718 7710 office

www.moslereconomics.com

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MMT White Paper

http://moslereconomics.com/mmt-white-paper/

'The 7 Deadly Innocent Frauds' 

http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

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[Ryan Benincasa]

My jaw hit the floor when Powell said the following during his prepared remarks. Full-throated endorsement of what Warren et al. have been pounding the table on for years (emphasis added):

 "Let me now turn to issues related to the implementation of monetary policy, with the reminder that these issues are separate from—and have no implications for—the stance of monetary policy. In light of the continued tightening in money market interest rates relative to our administered rates, and other indicators of reserve market conditions, the Committee judged that reserve balances have declined to ample levels. Accordingly, at today’s meeting, the Committee decided to initiate purchases of shorter-term Treasury securities (mainly Treasury bills) for the sole purpose of maintaining an ample supply of reserves over time. Such increases in our securities holdings ensure that the federal funds rate remains within its target range, and are necessary because the growth of the economy leads to rising demand over time for our liabilities, including currency and reserves. As detailed in a statement released today by the Federal Reserve Bank of New York, reserve management purchases will amount to $40 billion in the first month and may remain elevated for a few months to alleviate expected near-term pressures in money markets. Thereafter, we expect the size of reserve management purchases to decline, though the actual pace will depend on market conditions." 

Link to source: https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20251210.pdf

Anyone else find it a little funny/ironic they are placing so much emphasis on swapping reserves for...t-bills?! As if they are not basically the same thing with slightly different duration...

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Ryan Benincasa
e: ryan.be...@gmail.com
c: 203.512.2743

[Warren Mosler]

👍👍👍