2025-12-26 21:20:27

A silent shift is taking place in the money market. The Federal Reserve's recent move—removing the cap on the $500 billion repurchase agreement facility—seems like a technical adjustment, but in fact, it is an early defensive measure against liquidity risks.

This is not a simple policy tweak. Behind Powell's team’s actions lies an anticipation of deeper financial risks. Restarting balance sheet expansion, large-scale purchases of short-term Treasury bills, lifting the cap on standing repo facilities—all these measures point to the same issue: the liquidity in the U.S. banking system is undergoing a subtle yet dangerous transformation.

From the most direct price signals, the cost of funds in the overnight repo market has clearly risen. The SOFR-OIS spread has widened significantly, indicating that market expectations for funding costs are increasing. On the quantitative side, signals are also being sent—reverse repo tools are nearing exhaustion, and the frequency of calls on standing repo facilities is increasing. These indicators together paint a picture of gradually mounting liquidity pressure in the money market.

Why is the Fed acting now? Because they are well aware of the lessons from the 2019 "cash crunch." Back then, the Fed underestimated the banking system’s actual demand for reserves, resulting in overnight repo rates soaring above 10%, catching the entire market off guard.

Today’s situation is even more complex. As balance sheet reduction continues, excess cash reserves in the banking system have shrunk significantly. This means the market’s resilience to funding fluctuations is weakening, and any external shock could trigger a more intense reaction. As reserves transition from "extremely ample" to "adequate" and even to "structurally tight," the hidden risks have been noticed by the Fed.

This move is less about responding to a crisis and more about preemptively plugging a potential trillion-dollar gap before a crisis actually erupts. The Fed is sending a clear message to the market: we see the risks clearly and are prepared.

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GamefiHarvester

· 2025-12-29 19:21

Here comes another trick of "we are prepared," but honestly, isn't it just worrying that the banks might run out of money? What was the 2019 "liquidity crunch" compared to this? If it really collapses this time, that would be something to watch. Reserves are tightening more and more, and balance sheet reduction is ongoing. This pace... I'm a bit anxious. The Federal Reserve's current actions are basically betting that no one will see through it. In the end, they still have to rely on printing money to save the situation. Liquidity pressure has accumulated to this point, and now they are talking about defense? It's too late, really. The SOFR-OIS spread is so large, indicating that the market has already sniffed out the signs. Don’t believe it? Just look at the actions of institutions. If a real problem occurs this time, who will fill the trillion-level gap? It will still be us common folks paying the price. Basically, it's a game of chess—The Fed is defending, institutions are bottom-fishing, and we're still watching the K-line. Don’t be brainwashed by the phrase "We are well prepared." Being prepared is always a post-hoc strategy. It feels like the next big wave is not far off. Everyone, better exit early.

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HodlAndChill

· 2025-12-29 14:57

Here we go again, here we go again. The Fed's latest move is just the final celebration before passing the buck. The lesson from 2019 hasn't been learned yet, and now they're starting to print money for defense? Basically, they're just afraid of another 10% interest rate shock. Bank reserves have shifted from ample to tight, which is an inevitable result of inflationary pressure. Won't we end up footing the bill again? The accumulation of liquidity pressure clearly indicates problems ahead. The real show in the crypto world has just begun. The Fed is also starting to back down. An insurmountable trillion-dollar hole can't be plugged. This time, things are really about to change.

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SchrodingerWallet

· 2025-12-28 16:44

Another power game... Powell is playing chess, and we're watching the show.

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ApeEscapeArtist

· 2025-12-26 21:48

Another wave of proactive planning is here. Powell's move is quite strategic. The 2019 liquidity crunch really scared them, and now they are afraid it will happen again. So they decided to tear down the ceiling altogether. It feels like the banking system's days are getting tougher and tougher. The shrinking of reserves is something to watch closely. The Federal Reserve stepping in to inject liquidity now indicates that risks are indeed accumulating, and it's not just a simple fine-tuning.

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FrogInTheWell

· 2025-12-26 21:42

Here we go again. The Federal Reserve's so-called "preemptive defense" rhetoric, in plain terms, is just fear of another embarrassing situation like 2019. Reverse repurchase agreements are almost gone, and SOFR is soaring... Only now do we realize, why didn't we act earlier? The removal of the 500 billion cap sounds impressive, but if things really go out of control, it might be far more than just this amount.

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BuyHighSellLow

· 2025-12-26 21:38

Wait, isn't this just a replay of the 2019 farce? Powell is so quick this time, which clearly shows he's really scared.

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NotAFinancialAdvice

· 2025-12-26 21:28

They're starting to flood the market again. Powell is battling the nightmare from 2019.

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AirdropChaser

· 2025-12-26 21:24

I understood that wave back in 2019. The Federal Reserve has truly learned its lesson this time. However, I still think the issue of reserve shrinking is a bit uncertain.

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