Fed's Perli encourages firms' use of Standing Repo Facility
When it comes to the Standing Repo Facility, or SRF, "I encourage our counterparties to use the SRF when it makes economic sense - the facility is there to support the effective implementation of monetary policy and smooth market functioning," said Roberto Perli, who manages the central bank's System Open Market Account, in the text of a speech prepared for delivery at a conference held by his bank. "It's in everyone's best interest if the SRF works as intended," Perli said.
The Fed's SRF was launched in 2021 and provides eligible firms with fast cash in exchange for Treasury securities, in a bid to bolster market liquidity and avoid unexpected shortfalls that can be hard for the central bank to counter expeditiously. Thus far, markets, still flush with liquidity, have largely left the SRF alone outside of the end of the third quarter last year, a short period of volatility.
Perli reiterated in his remarks that fairly soon the New York Fed will join its afternoon SRF operations with a morning availability.
"In the not-too distant future," the New York Fed "will start implementing daily morning SRF operations that will also be settled in the morning," Perli said. "This will be an important step in enhancing the efficacy of the facility, and, at the margin, it can contribute" to allowing the Fed's balance sheet to be smaller than it would otherwise be.
Perli is responsible for implementing monetary policy for the central bank, both in terms of the management of its short-term interest rate target and its massive holdings of cash and bonds. Perli noted in his remarks that the ongoing contraction of the Fed's balance sheet, which has seen the central bank shed just over $2 trillion in Treasury and mortgage bonds, likely has some ways to go, although there are signs of tightening money market liquidity.
As Fed holdings shrink and reserve levels move down, "upward pressure on money market rates is likely to increase," Perli said, adding "we are starting to see the early signs of this in the repo market, especially around key reporting dates."
This rise in repo market chop "is not a cause for concern," Perli said. But he also noted that it's likely to increase the need for markets to use the SRF to manage their liquidity needs.
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