"The daily effective federal funds rate is a volume-weighted average of rates on trades arranged by major brokers," says the New York Fed. And as you can, it's slipped sharply below target...closer to the current yield on 10-year Treasuries, in fact.

So why does the US central bank insist in lending fresh cash to the money markets through its open-market operations? The Fed's put in $76 billion over the last week, ostensibly to keep the Fed funds rate on target by making money more readily available.

Some $24 billion of that liquidity is still outstanding right now (as of 10:45 EST , Thurs 16 Aug.), with the latest $5 billion being auctioned for a repurchase agreement just ahead of today's open.

Does that make it a calamity yet?

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

Comments

Bond investor
16 Aug 07, 20:00

Central Banks Money Supply

Adrian, I think you need to account for the term of the repurchase agreements made in the past few days. They were 1, 7 and 14-day repos, and the net adds to the system (if you subtract the operations ending) is far less than the $78 B touted in news headlines. So it's not as though this is "unlimited free money" forever. The ECB is the one you should be looking at -- they came back twice from the sacred August vacation month to pump an unlimited amount below their target rate!

Andrew
30 Aug 07, 13:57

who is easing rates

the US FF effective drop to 4.5 is short term and reversible. the Bank of japan appears to be pushing out even more O/N liquidity to weaken the yen and keep the carry trades in place

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