JPMorgan Is Bank Behind The Repo Crisis And The Fed's Decision To Launch QE Lite... Again

In early September 2019, not long after the Fed had started its first post-GFC easing cycle, both stocks and bonds were rocked by a series of violent, sharp and unexpected meltdowns, sparked by turmoil in the all-important repo market - the plumbing that connects the tens of trillions in assets that make up the US capital market and which is used by the Fed to set and adjust the cost of money on any single day. At one point during that fateful September, overnight funding rates exploded as high as 10%, and in a Sept 18, 2019 article titled "Fed loses control of its own interest rate as it cut rates", CNBC quoted Michael Schumacher, director, rate strategy, at Wells Fargo, who said that “this just doesn’t look good. You set your target. You’re the all-powerful Fed. You’re supposed to control it and you can’t on Fed day. It looks bad. This has been a tough run for Powell."

But how was this possible: after all the Fed had just started easing, stocks were rising, and there was no indication that the market's all-important plumbing had clogged up? We laid out the answer just days after the Repo market crash, when we quoted from a Reuters analysis "which found the one bank that may was the reason for the repo market to lock up on the 11th anniversary of Lehman when the repo rate exploded as high as 10%."