US Federal Reserve (Fed) injected $29.4 billion in cash into the banking system on October 31. This move, which is the largest repo transaction since the 2020 pandemic period, is short-term. funding marketsIt was carried out with the aim of relieving the congestion in the Bank and giving breathing space to the banks. Markets interpreted this development as a supportive signal for risky assets. However, experts underline that this is a new monetary expansion move, a temporary liquidity adjustment.
Fed’s Repo Operation and the Source of the Liquidity Congestion
Fed’s liquidity injection Standing Repo Facility In short, it was done through a permanent repo tool called SRF. Repo is based on the principle that one party lends its cash in exchange for a short-term return, while the other party borrows cash by providing collateral such as treasury bonds. In this transaction, cash flow directly affects the interbank reserve balance. While the lending bank’s reserve decreases, the borrowing bank’s reserve increases. When reserves fall below a certain level, a cash crunch occurs throughout the system and overnight interest rates rise rapidly.
recently repo ratesThe increase in was due to the decrease in cash in banks’ hands. There are two main reasons for this. first reason Fed‘s withdrawal of liquidity from the system within the scope of the balance sheet tightening process (quantitative tightening) and the Treasury Department’s increase in cash reserves at the Fed in order to strengthen its own accounts. Both developments reduced the amount of free cash in the market and caused reserves to fall to the level of 2.8 trillion dollars. The Fed’s intervention became necessary to prevent repo rates from rising uncontrollably.
What Does the Fed’s Move Mean for Bitcoin and Risky Assets?
The Fed’s $29 billion repo operation helped loosen short-term interest rates and facilitate banks’ access to liquidity. While this prevents a possible liquidity crisis in the financial system, it indirectly Bitcoin 
$110,860.50 It also offers support to risky assets such as Because the increase in reserves tends to increase the risk appetite in the markets. However, this intervention is not considered monetary expansion (QE) in the classical sense. Because the Fed did not directly purchase assets here, it only temporarily provided cash against collateral.
Analyst Andy Constan X In his post regarding the issue on his account, he stated that the Fed will not need to take more aggressive steps unless there is a serious reserve shortage throughout the system. According to Constan, the situation is just a temporary imbalance. The analyst said, “There is some credit stress and a squeeze caused by the Treasury’s cash position. It will balance itself over time.” However, if the problem escalates, the SRF’s volume could increase rapidly and interest rates could remain high for longer, he added.
