I thought it was part of “quantitative easing” and don’t understand while it’s still an option after they’ve been raising rates?
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A reverse repo is when the Fed sells securities to another party with an agreement to repurchase those securities at a later date. This causes excess reserve balances (think of it like the amount of cash on hand) in the banking system to decrease, lowering the amount of loans a bank can make. This is a form of contractionary monetary policy aimed to curb inflation just like raising rates.
On the other hand a repo transaction is the opposite, the Fed buys securities from another party with an agreement to resell those securities later. This is a form of expansionary monetary policy and also quantitative easing because the goal is to inject reserves into the banking system, allowing for more loans and “expansion” or growth in the economy.
A reverse repo is when the Fed sells securities to another party with an agreement to repurchase those securities at a later date. This causes excess reserve balances (think of it like the amount of cash on hand) in the banking system to decrease, lowering the amount of loans a bank can make. This is a form of contractionary monetary policy aimed to curb inflation just like raising rates.
On the other hand a repo transaction is the opposite, the Fed buys securities from another party with an agreement to resell those securities later. This is a form of expansionary monetary policy and also quantitative easing because the goal is to inject reserves into the banking system, allowing for more loans and “expansion” or growth in the economy.
A reverse repo is when the Fed sells securities to another party with an agreement to repurchase those securities at a later date. This causes excess reserve balances (think of it like the amount of cash on hand) in the banking system to decrease, lowering the amount of loans a bank can make. This is a form of contractionary monetary policy aimed to curb inflation just like raising rates.
On the other hand a repo transaction is the opposite, the Fed buys securities from another party with an agreement to resell those securities later. This is a form of expansionary monetary policy and also quantitative easing because the goal is to inject reserves into the banking system, allowing for more loans and “expansion” or growth in the economy.
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