A crack emerges in financial markets: The New York Fed spends $53 billion to rescue the overnight lending market

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It was the NY Fed's first such rescue operation in a decade, the last occurring in late 2008.

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On Tuesday morning, the NY Fed launched what's called an "overnight repo operation," during which the central bank attempts to ease pressure in markets by purchasing Treasuries and other securities. The goal is to pump money into the system to keep borrowing costs from creeping above the Fed's target range .

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The episode demonstrates evidence of emerging strains in financial markets and raises concern that the Federal Reserve could be losing its grip on short-term rates.

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The NY Fed announced plans late Tuesday to hold another repurchase agreement operation on Wednesday that would aim to repurchase up to an additional $75 billion.

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The rate on overnight repurchase agreements hit 5% on Monday, according to Refinitiv data. That's up from 2.29% late last week and well above the target range set in July by the Federal Reserve, which is 2% to 2.25%. The surge continued Tuesday, with the overnight rate hitting a high of 10% before the NY Fed stepped in.

Although it doesn't get as much attention as the Dow or the 10-year Treasury rate, this overnight market plays a central role in modern finance. It allows banks to quickly and cheaply borrow money, for short periods of time, often to buy bonds like Treasuries. This market broke down during the 2008 financial crisis.

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"No one knows why this is happening," Jim Bianco CEO of Bianco Research, said on Twitter. "If it persists more than another day or two, it will be a problem."