This post was authored by Adem Tumerkan, Dunham's Content Editor. If you have questions concerning today's topic, please call us at (858) 964 - 0500. Hold us to higher standards.

Repo-pocalypse: Banks Are Quietly Borrowing from the Fed Again Like It’s 2020

• The Fed injected $125 billion into the banking system in just five days — its largest short-term cash rescue since the 2020 crisis.
  
  
• Banks are tapping the Fed’s repo window at pandemic-era levels, a signal that liquidity may be thinning faster than expected.

What you need to know: Over the past week, the Federal Reserve quietly injected $125 billion into the U.S. banking system - its largest short-term liquidity move since 2020 - including $50 billion on October 31 through overnight “repo” loans (short-term funding where banks swap Treasuries for cash)¹. 

Why it matters: When banks are flush with reserves, they don’t need the Fed. But when cash runs tight - as it is now - they start trading bonds for short-term loans instead. That’s a key sign of pressure building inside the system, and history shows that small stresses often turn into structural cracks.

Now the Deep Dive: It’s ironic that the Fed talks tough on inflation while quietly flooding $100-plus billion back into the system - its biggest liquidity push since the pandemic.

• This is what traders call “stealth easing” - injecting cash through the back door without the optics of rate cuts or QE.

I warned about this back on October 3 in “Bank Reserves Are Shrinking - Is a Liquidity Crunch Next?” and, well, here we are.

As of writing this, banks are now swapping bonds for cash at the fastest pace since 2020. Worse, the cost of that cash - the rate banks pay to borrow it - has surged above what they earn keeping money parked at the Fed. That gap (the widest since 2020) means liquidity is getting tight.

And the stress is already beginning to show.

• Bank stocks dropped as worries about fraud and loan losses spread
• Crypto, AI, and gold have all slumped hard

Think of the financial system like plumbing - the Fed is the reservoir, and banks are the pipes that move money through the economy.

That reservoir has been draining for years under the Fed’s quantitative tightening (QT), record Treasury deficits, and an empty reverse-repo facility - aka the place banks once parked their excess cash.

Because of this, reserves are now $2.85 trillion (roughly 9% of GDP), the lowest since early 2023 - right before Silicon Valley Bank imploded.

Then came October’s month-end - when everyone needed cash all at once. Some pipes ran dry, and instead of borrowing from each other, banks went straight to the Fed.

That’s not a reason to panic - but it may be a sign of growing strain.

And there’s another issue. . .

The ongoing government shutdown means one of the economy’s biggest spenders isn’t spending.

Put simply, money drained by Treasury issuance (deficits) isn’t cycling back in - it’s just sitting idle, tightening the squeeze even more.

• The government issues bonds = pulls money out of the private sector.
  
  
• The government spends = pushes money back into the private sector.

Confidence, meanwhile, is the oxygen of banking. If the public sees too many banks lining up at the Fed’s window, it’s like watching someone go back to their parents for rent money - they might be O.K., but everyone starts wondering if they can stand on their own.

So what does this all mean? Well, if reserves keep sliding, regional banks - already crushed by rate shocks, fraud hits, and hundreds of billions in unrealized losses - may be the first to crack.

We’ve seen this movie before. When money is easy, everyone looks solvent. And when liquidity tightens, the weak links snap. 

The Fed may have misjudged how low reserves can fall before something breaks - and history shows they usually realize it only after chaos ensues.

Figure 1: St. Louis Federal Reserve, Dunham, November 2025

Locked Out: The American Dream of Homeownership has Slipped Away

• The median first-time homebuyer is now 40 - a record high - marking a lost decade of wealth-building for younger Americans shut out by surging prices and mortgage rates.
  
  
• As homeowners see record equity gains, affordability for new buyers has collapsed, turning one generation’s housing boom into another’s financial barrier.

What you need to know: The median age of first-time homebuyers in the U.S. has climbed to a record 40 as soaring prices and mortgage rates over the past few years delay homeownership for millions of Americans³. 

Why it matters: Younger Americans are increasingly financially exhausted, struggling to save for a down payment while juggling student loans, car payments, credit card debt, and rising living costs - all made worse by record-high rents that drain any chance of saving. This matters because housing underpins wealth creation for most Americans with nearly 9 in 10 homeowners relying on home equity as a retirement fund, a source of collateral, etc. As the age of first-time buyers climbs, younger generations are losing valuable years of wealth-building that older generations gained simply by buying earlier. 

Now the Deep Dive: The housing-affordability crisis is squeezing would-be first-time buyers harder than ever - and the numbers prove it.

According to the National Association of Realtors (NAR)⁴:

• The typical new homeowner is now 40 years old, up from 33 in 2020 - a record high.
  
  
• First-time buyers made up just 21% of all U.S. home purchases - roughly half the pre-2008 average.
  
  
• The median income for first-time buyers fell to $94,400 - the first decline in years.

To put this into perspective, NAR data going back to 1981 shows the median buyer age hovering near 29-31 for decades. Then COVID’s inflationary housing boom changed everything. In just a few years, the age shot up to 40.

That jump represents more than delayed homeownership - it’s essentially a lost decade of wealth. For instance, estimates show that younger Americans may miss out on $150,000 or more in equity they might’ve built by buying earlier.

Worse is that by buying late and at peak prices increases the odds of overpaying and seeing values slip.

Today, the median existing-home price is $415,200 - up 50% since 2019 - while mortgage rates have doubled since 2021 (crushing disposable income).

But as always, there are two sides to every market.

For every frustrated buyer locked out of the market, there’s a homeowner whose wealth keeps growing.

Those who already own homes enjoy record equity gains and ultra-low pandemic-era mortgage rates, giving them leverage to make larger down payments or all-cash offers - advantages younger buyers simply can’t match.

Yet that imbalance could become the system’s undoing.

Why? Because when one generation’s asset boom becomes another’s barrier to entry, it invites political backlash and economic strain.

Thus, rising homeowner wealth may look great on paper for some (it certainly has been), but if it’s built on shrinking affordability - that’s rarely sustainable.

Something has to give.

After all, what can’t continue forever, won’t

Figure 2: Bloomberg, October 2025
The Labor Market Is Cracking - and the Fed Might Welcome It

• U.S. companies announced more than 150,000 jobs cuts in October — the most for any October in over 20 years — signaling that the labor market’s “gradual cooling” may be turning into a sharp freeze.
  
  
• Rising layoffs and sinking bank reserves could give the Fed cover to ease sooner than it admits — not because inflation is beaten, but because the system beneath the surface is starting to buckle.

What you need to know: According to Challenger, Grey & Christmas (aka the Challenger Job Cuts), US companies announced the most job cuts – over 150,000 - for any October in more than two decades as layoff momentum continues⁵. 

Why it matters: Layoffs like this risk turning a “gradual slowdown” into something sharper. The Fed wants slower wage growth to cool inflation, but mass job cuts can overshoot - draining spending power and tightening financial conditions further. If households pull back and banks remain under liquidity strain, the economy could tip into something far harder to control. 

Now the Deep Dive: The labor market continues melting away in front of our eyes.

• Nearly 1 million jobs were overstated between March 2024–25 and later erased (the highest since 2008-09).
  
  
• 153,074 job cuts were announced in October - nearly triple last year’s total.
  
  
• New hiring has been anemic for months.
  
  
• It’s taking much longer for those laid off to find work.

Blame it on trade wars.

Blame it on AI.

Blame it on trimming post-pandemic “bloat.”

Whatever the reason, the cuts are spreading - from Target and Amazon to UPS and Delta⁶.

Even more concerning is that companies usually add jobs into the holidays, but not this year.

• Seasonal hiring through October was the lowest since 2012

This contradicts what Fed Chair Jerome Powell’s recently claimed - that the job market is only “gradually cooling.”

• Keep in mind that Powell can’t truly say things are deteriorating - because the minute the Fed admits it publicly, they risk creating the panic they’re trying to prevent. Thus, take what officials say with a grain of salt.

But here’s what I’m thinking. What if this labor weakness is actually what the Fed wants?

When you think about it, the combination of rising layoffs and sinking bank reserves (as mentioned above) gives the central bank the political and market cover to pivot toward easing, even with inflation still above target.

They can say, “We’re not cutting because inflation is over - we’re cutting to support jobs and stabilize financial conditions.”

But there’s a catch.

If the Fed moves too soon, it risks reigniting the same inflation it never truly killed.

And if it moves too late, the slowdown could snowball before stimulus has time to help - especially with bank liquidity thinning.

Either way, the data says the labor market is already sinking, and the banking system is more fragile than it looks.

The question now isn’t if the Fed will pivot - it’s how they’ll justify it in a way without panicking markets.

That may be the telling hand.

Figure 3: Bloomberg, October 2025

Anyway, who knows how this will all play out?

This is just some food for thought as we watch how these trends develop.

We’ll be keeping a close eye on things. Enjoy the rest of your weekend.

Sources:

1. Federal Reserve has quietly injected $125 billion into the U.S. banking system in five days: $125 billion in 5 days: Fed quietly floods banks with cash again — what’s going on? - The Economic Times
2. Banking Analytics: Unrealized Losses Decrease Again at U.S. Banks
3. Median age of first-time US home buyer hits shocking new high — as dire state of real estate market is laid bare
4. NAR | Highlights From the Profile of Home Buyers and Sellers
5. What One Bleak Data Point Tells Us About the Labor Market - WSJ
6. Amazon, UPS and Target eliminate 60,000 jobs, but AI is not to blame. Laying off white-collar people is the easiest way to cut costs, academics say

Disclosures:

This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax or investment advice or an investment recommendation, or as a substitute for legal or tax counsel. Any investment products or services named herein are for illustrative purposes only, and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy or investment product or service. Always consult a qualified professional or your own independent financial professional for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance.

Information contained in the materials included is believed to be from reliable sources, but no representations or guarantees are made as to the accuracy or completeness of information.

Dunham & Associates Investment Counsel, Inc. is a Registered Investment Adviser and Broker/Dealer. Member FINRA/SIPC. Advisory services and securities offered through Dunham & Associates Investment Counsel, Inc.