Editing Repurchase agreement (section)

=== United States Federal Reserve use of repos ===
{{confusing section|date=October 2012}}

When transacted by the [[Federal Open Market Committee]] of the [[Federal Reserve]] in [[open market operation]]s, repurchase agreements add [[Bank reserves|reserves]] to the banking system and then after a specified period of time withdraw them; reverse repos initially drain reserves and later add them back. This tool can also be used to stabilize interest rates, and the Federal Reserve has used it to adjust the [[federal funds rate]] to match the [[inflation targeting|target rate]].<ref>John Hussman. [http://www.hussmanfunds.com/wmc/wmc070813.htm "Hardly a Bailout"] Hussman Funds, 13 August 2007. Accessed 3 September 2010.</ref>

Under a repurchase agreement, the Federal Reserve (Fed) buys [[United States Treasury security|U.S. Treasury securities]], U.S. [[agency security|agency securities]], or [[Mortgage-backed security|mortgage-backed securities]] from a [[primary dealer]] who agrees to buy them back within typically one to seven days; a reverse repo is the opposite. Thus, the Fed describes these transactions from the counterparty's viewpoint rather than from their own viewpoint.

If the Federal Reserve is one of the transacting parties, the RP is called a "system repo", but if they are trading on behalf of a customer (e.g., a foreign central bank), it is called a "customer repo". Until 2003, the Fed did not use the term "reverse repo"—which it believed implied that it was borrowing money (counter to its charter)—but used the term "matched sale" instead.