Instant view: U.S. fed funds rate breaks above Fed’s target range

Instant view: U.S. fed funds rate breaks above Fed’s target range

(Reuters) – A key interest rates the Federal Reserve aims to influence to control monetary policy broke above the top-end of the central bank’s target range for the first time since the global credit crisis more than a decade ago.

The effective or average interest rate on what banks charge each other to borrow reserves overnight rose to 2.30% on Tuesday, above the Fed’s current target range of 2.00%-2.25%, New York Federal Reserve data showed.

COMMENTS:

SUBADRA RAJAPPA, HEAD OF U.S. RATES STRATEGY, SOCIETE GENERALE, NEW YORK

“It adds the uncertainty, the repo market is $1 trillion plus and when you start seeing funding stresses of this magnitude it signals that it’s probably demand for reserves.”

“The question really becomes how is the Fed going to make sure we don’t have this volatility in the repo markets, and reacting to it with the repo facility and making cash available for traders. The question is should they be doing more? With the spike in effective fed funds will that mean they will be cutting IOER, and also they could potentially introduce a standing repo facility which they have discussed in the past, or they can start organically growing their balance sheet.”

“I think it’s a bit premature to either grow the balance sheet or introduce a standing repo facility, but we might get a little bit more color in the press conference from Chair Powell.”

LOU CRANDALL, CHIEF ECONOMIST, WRIGHTSON ICAP LLC, NEW YORK

“The fed funds rate is a sideshow when you have seen all the volatility in the repo rate. Yes it’s above the top end of the Fed’s target range. It was 5 basis points out of the range. It’s a pretty small miss.”

Compiled by Alden Bentley

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