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Powell Says RRP is Working, Providing Floor for Money Market Rates

FED

Q: What will the standing repo facility do for market trading conditions? What do you think about recent high reverse repo takeup?

  • A: RE standing repo: It really is a backstop, so it's set at 25bp. It's there to help address pressures in money markets that could impede the effective implementation of monetary policy. It's to support the functioning and effectiveness of monetary policy. It's set up with that purpose in mind.
  • RE RRP: We think it's doing what it's supposed to do, provide a floor for money market rates and help ensure the Funds rate stays within the target range. Essentially what's happening is that it results in a lower aggregate amount of Fed liabilities that are at banks in the form of reserves and a higher amount of Fed liabilities in money market funds in the form of overnight RRP balances.
  • That's all that's really happening there. We expect it to be high for some time. It's being driven by the relatively lower quantity of T bills and also the onset of the debt ceiling and the decline in the TGA. We don't have a problem with what it's doing.
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