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Illustration: Aïda Amer/Axios

Today's interest rates decision in the face of global economic turmoil but strong U.S. data is going to be dicey enough — but Fed chair Jerome Powell and the Federal Open Market Committee (FOMC) may also need to announce a comprehensive bond-buying program on top of that.

Driving the news: Following an emergency $53 billion repurchase agreement operation on Tuesday, the New York Fed announced it would hold another repo auction today for as much as $75 billion.

  • Interest rates jumped as high as 9% Tuesday, well above 2.25%, which is the top of the Fed funds rate that should guide the market.
  • The New York Fed was forced to intervene, something it hasn't done since 2008.

Why it matters: Market participants worry this is a sign there's a widespread lack of liquidity in the repo market, which is used by large, systemically important financial institutions to quickly borrow cash in exchange for securities like U.S. Treasuries.

  • A lack of liquidity starts to break markets down as the trading and pricing of assets becomes increasingly difficult. This happened to the repo market during the 2008 financial crisis.

The big picture: The Fed could indicate it plans to stabilize the level of reserves at today's FOMC meeting, meaning it increases its bond purchases, a process that "will look, walk and talk like quantitative easing," says Gennadiy Goldberg, senior U.S. rates strategist at TD Securities, a primary dealer that does business directly with the Fed.

What they're saying: Tuesday was the fourth time in the past year the repo rate has jumped to abnormally high levels, following episodes in December, April and on Monday.

  • Analysts say the culprit is a scarcity of bank reserves, which have been declining since 2014 and are expected to fall further.
  • "None of this was a shocker to anyone, so the question is why did the market panic," Goldberg tells Axios. "You’ve had enough of these repo events to suggest that we are getting to the point where there isn’t enough liquidity in the system."

What's next: Analysts at Bank of America Merrill Lynch see "substantial risks" that the Fed announces outright bond purchases to stabilize the repo market. That could mean $150 billion of additional Treasury purchases, bringing the total to $400 billion in the next year.

  • "Such a statement would imply that permanent balance sheet growth and outright purchases are necessary," BAML rates strategists said in a note to clients.

Go deeper

Updated 1 hour ago - Politics & Policy

British national named in Colleyville synagogue standoff

A law enforcement vehicle sits near the Congregation Beth Israel synagogue on Jan. 16. Photo: Brandon Bell/Getty Images

British national Malik Faisal Akram took four people hostage at a Texas synagogue outside Fort Worth on Saturday, the FBI said in a statement.

State of play: Authorities had initially declined to release the name of the 44-year-old suspect or identify the hostages, all adults, though police chief Michael Miller confirmed that one of those held was Rabbi Charlie Cytron-Walker, who leads the congregation.

Updated 2 hours ago - Politics & Policy

Omicron dashboard

Illustration: Brendan Lynch/Axios

  1. Health: Concerns grow over CDC's isolation guidelines — Experts warn of more COVID-19 variants after Omicron — WHO recommends 2 new treatments — What "mild" really means when it comes to Omicron — Deaths are climbing as cases skyrocket.
  2. Vaccines: America's vaccination drive runs out of gas— Puerto Rico expands booster shot requirements— Supreme Court blocks Biden's vaccine mandate for large employers.
  3. Politics: Vivek Murthy calls SCOTUS vaccine mandate block "a setback for public health" — Focus group says Biden weak on COVID response, strong on democracy
  4. Economy: America's labor shortage is bigger than the pandemic— — CDC COVID guidance for cruise ships to be optional starting Saturday — The cost of testing.
  5. States: West Virginia governor feeling "extremely unwell" after positive test — Youngkin ends mandates for masks in schools and COVID vaccinations for state workers — America struggles to keep schools open
  6. World: Beijing reports first local Omicron case weeks before Winter Olympics — Teachers in France stage mass walkout over COVID protocols.
  7. Variant tracker
7 hours ago - Sports

Novak Djokovic loses Australian visa appeal

Novak Djokovic of Serbia plays a forehand during a practice session ahead of the 2022 Australian Open at Melbourne Park on January 14, 2022. Photo: Daniel Pockett/Getty Images

Tennis star Novak Djokovic left Australia on Sunday evening, facing a three-year visa ban after an appeals court in the country revoked his visa.

Driving the news: Djokovic will not be able to defend his Australian Open title when the tournament starts in Melbourne. The World No. 1 is looking to break a three-way tie with Roger Federer and Rafael Nadal for most Grand Slam men's singles titles.