🤔 The Fed last night injected an additional $13.5 billion into the banking system through a Repo contract.
This is the second largest liquidity injection since Covid-19, and it even surpassed the peak level during the Dot-Com bubble.
Why does the Fed have to inject so much… while trying to maintain a "tightening" tone?
1) The market is in distress
Repo is a short-term money injection method to ensure the interbank system does not experience "liquidity blockage".
When the Fed has to inject Repo on such a large scale, it only indicates one thing:
👉 There is real stress pressure beneath the surface.
The U.S. bond market has seen the most volatility this month since 2020. The yields on 1-3 months shot up and then fell very quickly, proving there is a temporary "USD thirst" in the system.
2) An early signal for a loosening cycle?
Repo is often a stepping stone before the Fed has to soften its tone.
It’s not that they want to — but the system forces them to do so.
Looking back at history:
• 2019: Fed injected Repo → a few months later had to return to QE.
• 2020: Huge Repo → the beginning of the largest stimulus package in history.
• 2023–2024: RRP → keeping the market from "dying prematurely" when QT is too strong.
Now history seems… to be repeating itself.
Although the Fed still says "not sure about cutting interest rates in December", the flow of money tells a different story:
👉 Liquidity has started to loosen
