On Tuesday the New York Federal Reserve Bank stepped into financial markets for the first time in more than a decade to maintain interest rates according to the Fed’s target.
Analysts say the operation seems to have been successful however it triggered some jitters, coming because the Fed’s policy-setting Federal Open Market Committee starts a 2-day’s meeting anticipated to provide a second cut in the benchmark lending rate.
The New York Fed mentioned the $75 billion in repurchase agreements — known as “repos” have been made “to maintain the federal funds rate throughout the target range of 2 to 2-1/4 %.”
The New York Fed conducts common operations to implement the FOMC’s policy; however, the rate had moved to 2.25 %, as demand for cash rose between falling bank reserves.
Kathy Bostjancic, chief US financial economist and Oxford Economics, informed AFP there was a “tsunami” of technical factors driving the need for funds and pushing rates out of whack; however, the significant injection helped.
It was the primary such operation since September 2008.
“Any time the plumbing acts up it is a concern, and it has a ripple effect throughout money markets,” Bostjancic mentioned, including that reserves helped with the “dislocation within the repo market.”
She defined that technical factors including September payments of corporate taxes, in addition to a massive supply of Treasury debt issuance planned the drop in bank reserves.
US lawmakers’ delay in increasing the federal debt ceiling earlier this year triggered a backlog in Treasury debt issues because the government was not capable of raise more funds. Treasury has had to play catch up, she stated.
“So a lot is going on. It is technical, and it all came together directly,” she stated, adding that the New York Fed has been “behind the curve in attempting to estimate how much reserves need to be in the system.”