This morning, the Fed sold a record $992 billion in Treasury securities in exchange for cash, via overnight reverse repos (RRPs), to 74 counterparties. Yesterday’s overnight RRPs matured and unwound this morning, and were replaced, plus some, by today’s RRPs. You can practically hear that giant sucking sound of cash that the Fed is draining out of the financial system.
Reverse repos have the opposite effect of QE: They absorb cash. With these RRPs, the Fed sells Treasury securities and removes cash from the financial system. RRPs are a liability on the Fed’s balance sheet – cash that it owes the counterparties. With RRPs now at $992 billion, the Fed has undone over 8 months of QE (at $120 billion per month):Fed’s Reverse Repos Spike to $1 Trillion. Cash Drain Undoes 8 Months of QE | Wolf Street