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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 45 mins ago - World

Mexican President López Obrador tests positive for coronavirus

Mexico's President Andrés Manuel López Obrador during a press conference at National Palace in Mexico City, Mexico, on Wednesday. Photo: Ismael Rosas/Eyepix Group/Barcroft Media via Getty Images

Mexican President Andrés Manuel López Obrador announced Sunday evening that he's tested positive for COVID-19.

Driving the news: López Obrador tweeted that he has mild symptoms and is receiving medical treatment. "As always, I am optimistic," he added. "We will all move forward."

Sarah Huckabee Sanders to run for governor of Arkansas

Sarah Huckabee Sanders at FOX News' studios in New York City in 2019. Photo: Steven Ferdman/Getty Images

Former White House press secretary Sarah Huckabee Sanders will announce Monday that she's running for governor of Arkansas.

The big picture: Sanders was touted as a contender after it was announced she was leaving the Trump administration in June 2019. Then-President Trump tweeted he hoped she would run for governor, adding "she would be fantastic." Sanders is "seen as leader in the polls" in the Republican state, notes the Washington Post's Josh Dawsey, who first reported the news.

Coronavirus has inflamed global inequality

Illustration: Aïda Amer/Axios

History will likely remember the pandemic as the "first time since records began that inequality rose in virtually every country on earth at the same time." That's the verdict from Oxfam's inequality report covering the year 2020 — a terrible year that hit the poorest, hardest across the planet.

Why it matters: The world's poorest were already in a race against time, facing down an existential risk in the form of global climate change. The coronavirus pandemic could set global poverty reduction back as much as a full decade, according to the World Bank.