Central bank officials are discussing plans to use so- called reverse repurchase agreements to drain some of the $1 trillion they pumped into the economy, said the people, who declined to be identified because the talks are private. That’s where the Fed sells securities to its 18 primary dealers for a specific period,temporarilydecreasing the amount of money available in the banking system.
There’s no sense that policy makers intend to withdraw funds anytime soon, said the people. The central bank’s challenge is to decrease the cash without stunting the economy’s recovery and before it sparks inflation. Fed ChairmanBen S. Bernankesaid in a July Wall Street Journalopinionarticle that reverse repos are one tool to accomplish that goal without raising interest rates.
“One thing the Fed has to figure out is if they can launch pilotprogramswithout spooking the market and creating the perception that they are about to tighten,” saidLouis Crandall,chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm that specializes in government finance. “They are discussing things like accounting issues, and updating the governing documents to the volume of reverse repos the dealer community could absorb.”
Fed Balance Sheet
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