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New York Fed injects another USD 75 bn into US money markets

AFP  |  New York 

For a fourth day in a row, the Federal Reserve Bank of New York on Friday injected billions of dollars into US money markets to preserve the Fed's control over short-term interest rates.

However, in a sign a cash shortage could be easing, the New York Fed said the demand for liquidity on Friday did not exceed the USD 75 billion officials had offered, as it had on two prior days.

Banks have struggled in recent days to find the cash needed to meet reserve requirements which has pushed up short-term borrowing rates.

Jerome Powell, Chairman of the Federal Reserve Board, downplayed concerns this week about the money market's cash crunch, saying it was not a sign of problems in the wider economy or a concern for monetary policy.

Economists say an array of conditions converged to dry up supplies of liquidity in the banking system -- including quarterly corporate tax payments and accelerated government borrowing from bond investors.

Banks have also generally had less cash on hand as the Fed unwinds its massive, multi-trillion bond-buying stimulus programme from the post-financial crisis era.

As bonds have matured, the Fed has accepted repayment rather than reinvesting the proceeds, which moves cash out of the economy and into government coffers.

Banks borrow regularly in markets for very short periods, usually overnight, to make sure their daily cash reserves do not fall below the required level. And the Fed adds or removes liquidity to keep interest rates in line with the desired target.

But the cash shortage in recent days prompted the New York Fed to pump just more than USD 275 billion into the short-term market as interest rates soared and threatened to break out of the Fed's target range.

The Fed, which cut benchmark lending rates interest rate on Wednesday, also made some technical adjustments to try to keep the rate in line with the range, including cutting the interest it offers on bank reserves held at the Fed that are in excess of the minimum required level.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Fri, September 20 2019. 19:10 IST