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Opinion

Concerns still roil the money markets after a quiet new year

Calm in the money markets over the new year will not silence growing calls for the Federal Reserve to provide a standing repo facility.

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It has been quiet out there in the US dollar money markets; maybe too quiet.

On Wednesday, Patrick Harker, president of the Federal Reserve Bank of Philadelphia, shared some thoughts at a New York conference on monetary policy normalization.

He looked back to the dramatic rise in secured overnight funding rates in September and to the steps the Fed had taken to ensure it had not been repeated, with a particular focus on the year-end just passed.

Carefully laid plans for the New York Fed’s open market trading desk to offer two-week term repo twice a week spanning year-end, to ensure plentiful reserves at a time when banks typically conserve cash to make their quarter-end ratios look good, clearly worked.

The effective fed funds rate maintained a virtually constant level at 1.55%, as it has since October, with repo markets staying calm and the secured overnight financing rate (Sofr) at which banks lend against US Treasury collateral staying within a few basis points of fed funds.

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Patrick Harker,
Federal Reserve
Bank of Philadelphia

“Instead of wreaking havoc, the year’s end was a non-event,” Harker reported.




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