New York Fed officials examining whether distribution of reserves contributed to cash shortages earlier this week”contributed to a spike in short-term lending rates this week, after the central bank said it would extend recent operations to inject cash into money markets., known as reserves,.
“’That ability of the system to move money around and redistribute—it didn’t work the way we’ve seen in the past,’ said New York Fed President John Williams“The New York Fed said on Friday it would continue to offer to add at least $75 billion daily to the financial system through Oct. 10, prolonging its efforts to relieve pressure in money markets.
However, when things go awry, unsupported reassurances can have a negative effect. The negative effect is heightened when the Fed guesses at the cause and then it turns out to be wrong. Worst of all is when the Fed begins throwing money into the system in the hopes of solving whatever the problem is and keeping those guys in the other room from running for the exits.
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