“The Fed has lost control of funding”

The New York Fed should be taking care of this, but they’re not. Something is seriously not right.

One of the key U.S. borrowing markets saw a massive surge Monday, a sign the Federal Reserve is having trouble controlling short-term interest rates.

Amid the settlement of Treasury coupon auctions and the influx of quarterly corporate tax payments, the rate on overnight repurchase agreements soared by 153 basis points to 3.80%, the largest daily increase since December, based on ICAP pricing.

The Fed meets tomorrow and on Wednesday. A rate cut is still almost a certainty.

As the Federal Open Market Committee meets this week, this surge could force yet another tweak to the central bank’s interest on excess reserves rate to help ensure its main tool for guiding the economy — the fed funds rate — stays within policy makers’ preferred band.

“The Fed has lost control of funding,” said Mark Cabana, head of U.S. interest rates at Bank of America Corp.

Posted by on September 16th, 2019 at 2:41 pm


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