MNI BRIEF: Fed To Expand SRF Around Year-End Market Pressures
MNI (WASHINGTON) - The Federal Reserve Bank of New York will expand the timing of the Standing Repo Facility around year-end to better understand how the facility's timing can impact the effectiveness of the tool during money market pressures.
The Fed is conducting an additional overnight SRF operation on each business day beginning December 30 through January 3 from 8:15 to 8:30 a.m. ET because there's likely to be some money market pressures at that time and those pressure offer a better chance that it will be economically convenient for counterparties to use the facility. There is also a good chance officials will learn whether adding another earlier auction could help make the facility more effective.
Officials expect temporary money market pressures around year-end -- with no meaningful passthrough to the federal funds rate -- but not because reserves are becoming less abundant or more scarce but because of dealer balance sheet constraints.
The SOMA Manager, Roberto Perli, last month downplayed concerns about stigma surrounding the SRF and emphasized the facility has been effective. (See: MNI: Fed's Standing Repo Facility Tested By Market Rate Spike)