Today, there is a lot of news about the Fed pumping about 6.8 to 7 billion USD into the financial system tomorrow through the acquisition contracts (repo). Many people call this quantitative easing (QE) but it's not exactly that.

A repo is essentially a very short-term loan. The Fed lends cash to banks, and the banks provide high-quality assets as collateral. After a very short period, usually just one day, the banks repay the Fed and receive their collateral back. This is a tool the Fed regularly uses to manage daily liquidity.

The purpose of this activity is to ensure that the system always has enough cash, to prevent short-term interest rates from spiking, and to avoid stress in the short-term capital market. Such moves are especially common at the end of the year, when liquidity may temporarily tighten.

It is important to understand that this is not QE, not money printing, and not a signal that the Fed is easing monetary policy because money has to be repaid, but it also shows that liquidity is still tight.

Simply put, this is the regular maintenance of the financial system. Like adding oil to an engine, it helps the market run smoothly while the Fed continues to adjust the overall monetary policy for 2025.
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