Connect with us

Fed Intervenes in Market to Set its Interest Rate, a First Since the Financial Crisis

Trump Calls for Fed’s ‘Boneheads’ to Slash Interest Rates Below Zero


Fed Intervenes in Market to Set its Interest Rate, a First Since the Financial Crisis

The Federal Reserve had to step into financial markets on Tuesday to keep interest rates from rising above its target, the first time the central bank has had to carry out this type of “market operation” since the global financial crisis.The Federal Reserve Bank of New York had to spring into action to keep the effective fed funds rate in line after it rose to the very top of the Fed’s 2 to 2.25 percent range. The central bank branch announced on Tuesday that it would conduct its first major repurchase market operation since the Fed changed its policy-setting approach during the Great Recession.But the operation was bedeviled by technical difficulties, forcing the Fed to delay the intervention. It was carried out 20 minutes later than initially planned. The move came after the overnight rate on Treasury repurchase agreements, which are short-term loans used by financial institutions like hedge funds and banks, surged at the start of the week amid a shortage of dollars. A few factors seemed to give rise to that shortfall: companies withdrew cash from money markets to pay their taxes shortly after the United States Treasury issued a raft of new bonds. That glut of new debt sapped up cash.The surge in repurchase rates — commonly called repo’s — spilled over to the Fed’s main policy tool, the federal funds rate, driving it to 2.25 percent as of Monday. Tuesday’s intervention is symbolically important. The central bank decided just this year to keep its balance sheet large enough that it can set its policy rate without active market operations. But this episode suggests that it may not have kept its holdings big enough for that approach to work amid more extreme market conditions. Banks increasingly hang onto reserves — currency deposits — in part because of post-crisis regulation. Even though the overall amount of reserves in the banking system remains high, with excess reserves at about $1.4 trillion, the cash no longer flows readily to patch up short-term shortages. That makes market stress like this week’s possible, and means that the Fed can set things right with a relatively small intervention. ““For some time now, we’ve had September 16 circled as the first day of the rest of the repo market’s life,” said Lou Crandall, chief economist of Wrightson ICAP. He said that the recent dislocations suggest that the Fed’s goal of setting rates without fairly regular market operations “may not be realistic.”

Source link

Continue Reading
You may also like...


  1. I have not checked in here for some time since I thought it was getting boring, but the last few posts are good quality so I guess I will add you back to my daily bloglist. You deserve it my friend 🙂

  2. After all, what a great site and informative posts, I will upload inbound link – bookmark this web site? Regards, Reader.

  3. I love your blog.. very nice colors & theme. Did you create this website yourself or did you hire someone to do it for you? Plz respond as I’m looking to construct my own blog and would like to know where u got this from. thanks

  4. Just wanna tell that this is very helpful, Thanks for taking your time to write this.

  5. It’s really a great and helpful piece of information. I’m glad that you shared this helpful information with us. Please keep us up to date like this. Thank you for sharing.

  6. I have been checking out many of your articles and i can state clever stuff. I will surely bookmark your website.

  7. Wonderful site. A lot of useful info here. I¦m sending it to a few pals ans also sharing in delicious. And naturally, thanks on your effort!

  8. brujos


    You are my aspiration, I have few web logs and occasionally run out from post :). “Analyzing humor is like dissecting a frog. Few people are interested and the frog dies of it.” by E. B. White.

  9. What i do not realize is in reality how you are now not actually much more smartly-preferred than you may be right now. You’re very intelligent. You already know therefore considerably in relation to this topic, made me in my opinion consider it from a lot of various angles. Its like men and women don’t seem to be fascinated except it is one thing to do with Lady gaga! Your personal stuffs nice. At all times deal with it up!

  10. I love your writing style really loving this site.

  11. I truly value your work, Great post.

  12. I do not even know the way I stopped up right here, however I assumed this put up used to be good. I don’t understand who you are but definitely you’re going to a well-known blogger in the event you aren’t already 😉 Cheers!

  13. I like what you guys are up also. Such clever work and reporting! Keep up the superb works guys I¦ve incorporated you guys to my blogroll. I think it will improve the value of my website 🙂

  14. Very good written post. It will be valuable to everyone who employess it, including myself. Keep doing what you are doing – can’r wait to read more posts.

  15. Great write-up, I am regular visitor of one’s site, maintain up the excellent operate, and It’s going to be a regular visitor for a long time.

Leave a Reply

Your email address will not be published. Required fields are marked *


To Top