STOCK MARKET WATCH -- Friday, 13 June 2014

[Demeter]

14. Two Fed Officials Suggest Reverse Repos May Need Borrowing Limits, After All

It’s looking like the Federal Reserve may be taking its all-you-can-eat option off the menu.

The presidents of the New York and Boston Fed banks have made the case in recent weeks that financial stability concerns could lead to changes in the way a program to control short-term interest rates is finally implemented.

The officials were discussing the future of the Fed’s overnight reverse repurchase agreement program. These so-called reverse repos have been in testing since last September and will be through this year. The reverse repos take in cash from eligible banks in exchange for overnight loans of Treasury securities owned by the Fed. The central bank has never done something like this on a large scale, hence the testing.

If adopted, the reverse repos are poised to become a significant part of the Fed’s tool kit once it decides to start increasing interest rates from near zero, because officials believe the facility will set a floor for short-term borrowing costs. A number of Fed officials have expressed satisfaction with how the testing has gone...

http://blogs.wsj.com/economics/2014/06/11/two-fed-officials-suggest-reverse-repos-may-need-borrowing-limits-after-all/