The federal reserve will be withdrawn from the market
liquidity or trigger new distortions
In order to stimulate the economy,The federal reserveInject more than 2.5 trillion years into the financial systemThe dollarThe money.Now want to take these off the market liquidity, and does not result in a new twist.
Increases in interest ratesFor matters.The federal reserve to raise interest rates are usually higher rates, including mortgage and car loans, andThe United StatesDebt financing costs.Improper operation will affect the credibility of the federal reserve.
Broker-dealers Wedbush Securities Inc., a fixed income of
financing,futuresCompetent and interest rates, mu (Scott Skyrm) said, today the topic of discussion is that the federal reserve has injected so much liquidity, there is enough powerful tool to raise the federal funds rate?
The federal reserve in the past is to set the benchmark interest rate by buying and selling Treasury's (benchmark interest rates for the federal funds rate in the United States, namely, its rate for overnight loans between Banks), and this kind of operation will increase or reduce bank reserves at the fed, even small changes enough to change interest rates.
But this time, due to the action is too large, the fed was forced to design new tools to perform the decision.
The New York federal reserve bank President Dudley (William Dudley) told the Wall Street journal (at the end of Septemberblog,weibo) "(The Wall Street Journal), he is convinced that these tools are effective.
The fed some internal and external special concern, is called "reverse repos" (reverse repo) tool is valid.In a reverse repo, the fed by American Treasury bonds as collateral to the money market funds and other institutions to borrow overnight, the next day to return money and redemption of collateral, and begin the next round of operation.
On the fed's balance sheet have trillions of dollars in us Treasury bonds can serve as collateral, the reverse repurchase may become a effective tool for the draining excess liquidity in the financial system, the excess liquidity is the federal reserve to withstand the financial crisis in 2008 and launched from bond purchases.
But the fear is that reverse repurchase operation could make the fed have become too powerful influence in the money market.For example, to meet the market pressure, money market funds has not may choose to give money to the federal reserve bank, this will cause liquidity problems.Monetary market fund is a kind of tool for businesses and individuals to deposit money, can fast cash.
Before the federal reserve bank of Philadelphia i. Plosser (Charles Plosser), said in an interview that could change the short-term money markets in most unexpected way.
Total $2.7 trillion money market fund industry in the United States are adjusting operation mode to adapt to the new regulations, and that only the federal government and agency bonds investment fund is not bound by the new
rules.Analysts say those assets of $1 trillion fund may instead only investment in government securities.This means that these funds have more reason to reverse repurchase program of the federal reserve, and select the U.S. debt as collateral.
In addition, jp Morgan Chase (J.P. Morgan Chase & Co.), State (State Street Co.) and other large Banks are less willing to spare cash deposits, resulting in billions of dollars to be looking for a safe haven, one option is that the fed through reverse repurchase plan to replace cash with us Treasury bonds.And at the same time, the U.S. government borrowing constraint limits the supply of U.S. Treasury bonds, can meet all requirements.
Barclays (Barclays PLC) money market analyst Abate (Joseph Abate), according to the federal reserve cautious about reverse repurchase plan, not only because the plan will increase the influence of the fed in currency markets, and also because the plan can actually supply market need lot of safe assets.
The fed's recent policy meeting minutes show, influenced by these concerns, the federal reserve officials hope shortly after a rise in interest rates gradually withdraw from reverse repurchase plan.
Fed officials have not been implement said the strength of the public to make reverse repurchase.In march, the federal reserve officials said that they could improve or cancel reverse repurchase ceiling of $300 billion a day.
Expects the first rate increase only 25 basis points, the federal reserve and other affect interest rates.
One of the most important a tool is to improve the commercial Banks in the fed's rate.Including the mortgage giants, the federal national mortgage association (Fannie Mae, hereinafter referred to as: Fannie Mae) and the federal home loan Banks, financial institutions is not interest-bearing deposits at the fed, so reverse repurchase agreements will be used to absorb their excess money.
Hedge fund D.E. Shaw Group, chief global economist at the federal reserve bank of New York market supervisor before sarkozy said Brian Sack, he guessed that the fed will need to reverse repurchase operation to maintain years to fully control the interest rate.