WASHINGTON, Nov 23, 2019 (BSS/AFP) – The New York Federal Reserve Bank said
Friday it will extend its overnight cash injections for the money market into
next year in order to keep short-term interest rates stable.
The New York Fed, which oversees market operations for the Federal Reserve
system, said on its website it will conduct overnight operations “at least
through January” to ensure banks have enough cash in reserve.
Since September, the central bank has scrambled to prevent a liquidity
shortage from causing short-term interest rates to spike beyond its control.
Until at least December 12, the New York Fed will conduct overnight “repo”
operations of at least $120 billion.
Over that period, it will also conduct term repo operations over longer
periods, swapping Treasurys and mortgage-backed securities three times a week
for aggregate amounts of between $15 billion and $35 billion three times a
week.
To ensure their cash held in reserve does not fall below required levels,
banks lend each other cash for short periods, typically overnight.
But, for the first time since the financial crisis a decade ago, the New
York Fed in September began stepping into the money market, offering quick
cash to banks that faced a liquidity crunch as corporate taxes came due and
the federal government increased borrowing.
The lack of cash briefly pushed short-term interest rates above the Fed’s
target range for lending, disrupting a key way the central bank puts its
monetary policy into practice.
The Fed last month cut benchmark lending rates to between 1.5 percent and
1.75 percent, its third reduction this year in an effort to insulate the
United States from a slowing global economy and the effects of President
Donald Trump’s trade wars.
Friday’s announcement marked the fourth time the New York Fed has extended
its repo operations. Fed Chairman Jerome Powell said the sudden disruptions
were largely due to technical factors and were not grounds for serious
concern.
To inject further cash into the market, the Fed also recently announced it
will again buy large volumes of Treasurys, up to $60 billion per month, until
the second quarter of last year.