With Reverse Repos, the Fed is Now Trying to Clean Up Its Own Mess

by Doug French

This spring Scott Pelley of 60 Minutes asked Fed chair Jerome Powell, “And you believe the system, because of the oversight of the Fed, has the wherewithal to stand a significant shock to the markets?”

After pointing out that the markets survived a 25 percent drop in GDP and the loss of 30 million jobs last covid spring, Powell admitted that “some parts of the financial system had to be bailed out again. These were really, though, nonbank places like money market funds and things like that, where we had to step in again and provide liquidity.”

Money market funds (MMF) are what most investors consider cash. How could anything go wrong with cash? One wonders why the Fed would be forced to provide liquidity to shore up liquidity.

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