So you think you know the repo market?

 

What is one of the greatest fears of the Fed? Financial instability and not inflation. They are afraid of a liquidity crisis. The decision to lower rates is relatively easy versus the decision on what to do about liquidity or the cut in liquidity from a change in the Fed's balance sheet. This is why the Fed is planning to cut the QT program. 

The Fed does not want a repo crisis and the likelihood of a crisis is associated with the plumbing. The graph above is hard to read but it traces all of the pipes with how money and lending moves through the repo market. Thanks to concoda for their fine work.

This structure will change with centralized clearing as mandated by the SEC; however, that does not change the fact that liquidity is a chief concern of the Fed.