WASHINGTON (AP) – The Federal Reserve will keep pumping cash into a vital but obscure corner of United States (US) financial markets in coming weeks.
The New York Federal Reserve Bank, which handles the central bank’s interactions with financial markets, said Friday that it will offer daily repurchase, or “repo”, operations of at least USD75 billion through October 10. The aim is to maintain the Fed’s key policy rate within its target range.
For the first time since the 2008 financial crisis, the Fed this week conducted a series of major repo operations, injecting USD278 billion into the market to deal with a jump in short-term interest rates.
Officials say this week’s spike in rates is not a precursor of the type of underlying troubles that preceded the 2008 market meltdown.
In addition to the daily overnight operations of USD75 billion, the New York Fed said it would conduct longer 14-day repo operations of at least USD30 billion on Tuesday, Thursday and Friday of next week.
The Fed said that it would be ready to conduct further operations as needed after October 10 but the amount and timing of those auctions has not been determined.
In the fourth operation on Friday, banks asked for USD75.55 billion in reserves, only slightly higher than the USD75 billion limit set by the Fed.
The Fed began conducting these operations to calm money markets. Rates on short-term repo agreements had briefly spiked to nearly 10 per cent earlier this week as financial firms scrambled to find short-term funding.
The Fed seeks to manage its operations to keep the repo rate near the target it has set for its key policy rate, the federal funds rate, the interest that banks charge each other for overnight borrowing.