How exactly does the FED’s money enter/effect the market?
In: Economics
The usual way they inject money is by buying government bonds.
Today a big part of what the Fed announced was that they were essentially going to inject money into the repurchase (repo) market. Basically the repo market is way for financial institutions to fund themselves on a short-term basis. Generally what happens is that bank A sells bunch of securities (usually US government bonds) to bank B in exchange for a promise to repurchase them in the near term at a slightly higher price – that higher repurchase price effectively acts as the interest rate.
What the Fed is doing is basically offering to take the role of bank B in the example above.
Latest Answers