Fed Desk Slows Reserve Purchases After April Tax Date as Repo Rates Fall Below IORB
Updated
Updated · Insurance News Net · May 19
Fed Desk Slows Reserve Purchases After April Tax Date as Repo Rates Fall Below IORB
2 articles · Updated · Insurance News Net · May 19
The New York Fed’s Open Market Trading Desk cut the monthly pace of reserve management purchases substantially and in stages after the April tax date, saying reserve conditions had softened.
April tax payments had pushed cash into the Treasury General Account and drained reserves as expected, but the subsequent TGA decline lifted reserves back up, nudging the effective fed funds rate down 1 basis point.
Recent repo reference rates have printed notably below interest on reserve balances, with negative net bill issuance adding to the softness and reinforcing the case for slower purchases.
Nearly 100 banks holding 75% of system reserves told the Fed reserve demand is broadly stable for now, though risks are tilted toward lower demand if liquidity rules change.
The Desk said purchases are set month to month and could be raised, reduced or stopped, while stronger standing repo facility use could help support rate control if reserves fall further.
Why is the Fed sticking with 'ample reserves' while other central banks are shifting their strategies?
Could reforming bank liquidity rules be the key to shrinking the Fed's massive $6.4 trillion balance sheet?
With market stability at risk, how can the Fed overcome the 'stigma' of its own emergency lending tools?