The Fed may or may not launch QE4 at some point in the near future, even though Powell said that growing the balance sheet is "certainly possible", but for now the Fed is stuck with the only liquidity-injecting operation in its arsenal, namely repo, and after two consecutive days of repos, one for $53BN on Tuesday, and another for the full $75BN allotment today, moments ago the NY Fed announce that a third consecutive repo would take place on Thursday between 8:15am and 8:30am ET, "in order to help maintain the federal funds rate within the target range of 1-3/4 to 2 percent."
As a reminder, today for the first time in a decade, the Effective Fed Funds rate was fixed at 2.30%, 5bps above the top range of the fed funds range.
The Thursday overnight repo op will be the same size as the previous two, or $75 billion, which means that once again investors will be watching if the offering will be oversubscribed as it was today, when over $5 billion in Primary Dealer bids did not find the liquidity they needed.
As the NY Fed also noted, "propositions will be awarded based on their attractiveness relative to a benchmark rate for each collateral type, and are subject to a minimum bid rate of 1.80 percent", which as of today is the new excess reserve rate.
Here is the full NY Fed statement:
Statement Regarding Repurchase Operation
In accordance with the FOMC Directive issued September 18, 2019, the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York will conduct an overnight repurchase agreement (repo) operation from 8:15 AM ET to 8:30 AM ET tomorrow, Thursday, September 19, 2019, in order to help maintain the federal funds rate within the target range of 1-3/4 to 2 percent.
This repo operation will be conducted with Primary Dealers for up to an aggregate amount of $75 billion. Securities eligible as collateral in the repo include Treasury, agency debt, and agency mortgage-backed securities. Primary Dealers will be permitted to submit up to two propositions per security type. There will be a limit of $10 billion per proposition submitted in this operation. Propositions will be awarded based on their attractiveness relative to a benchmark rate for each collateral type, and are subject to a minimum bid rate of 1.80 percent.
The question of course is whether the market will be satisfied by this option, or will de boycott the continued use of band-aid solutions such as repos, and overnight repo rates will soar, making it clear that the repo market freeze will continue until the Fed finally launches QE.
Those wondering what tomorrow's general collateral repo rate will be, it will be revealed on Thursday morning shortly before 8am, or minutes before the repo is set to take place. If the rate soars again as it did on Tuesday, expect more "technical difficulties" and more delays, as the market makes its displeasure clear to Powell.