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The Federal Reserve Board shows that it is ready to exercise power at short-term interest rates

Federal Reserve Board Chair Jerome Powell is ready to draw out some of the central bank’s policy tools between regular meetings, if necessary to control short-term interest rates.

He pointed out that interest rates were recently under downward pressure during the Federal Open Market Committee’s March 16-17 meeting, according to minutes released Wednesday, and the Fed is paying excess reserves. He said it might be appropriate to adjust the interest rate (known as the IOER). Facility for overnight reverse repo contracts or both. He said regular meetings or actions could take place between them to keep the federal funds rate, the central bank’s main policy benchmark, “in the range” of 0% to 0.25%.

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As central bank reserves swell, repo and Treasury billing rates have been flirting at zero since the beginning of the year, sometimes trading below. Market participants told the Fed that the rapid expansion of reserves could continue to lower interest rates in money markets, making it the fastest and most prominent move in the overnight fundraising market.

“The Fed has no worries about helping the front end when needed, but at this point it seems that things have to get worse before the Fed can intervene,” said Jennadi, senior US rate strategist at TD Securities. -Goldberg says.


Padhraic Garvey, Head of Global Debt and Interest Rate Strategy at ING Groep NV, predicts that the moment could come sooner with the increase in IOER’s 10 basis points. “Inducing liquidity into that bucket is purely technical, and doing so helps to assemble where surrounding alternatives, including things like SOFR, should be traded,” he said. Wrote in the client note.

Traders aren’t waiting either. They are selling futures tied to federal funds rates that would benefit from such moves after the FOMC minutes hinted at the appropriateness of implementing adjustments to controlled rates.

To support short-term interest rates when the Federal Reserve instructed the Federal Reserve Bank of New York’s open market desk last month to raise the nightly reverse repo facility’s daily counterparty limit from $ 30 billion to $ 80 billion per day. Has taken the first step. After 2014.

On Wednesday, 15 participants used the facility for $ 35 billion, the highest since March 31st.

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The Federal Reserve Board shows that it is ready to exercise power at short-term interest rates

Source link The Federal Reserve Board shows that it is ready to exercise power at short-term interest rates

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