Latest news with #StandingRepoFacility
Reuters
6 days ago
- Business
- Reuters
New York Fed to start morning Standing Repo Facility operations next month
May 28 (Reuters) - The Federal Reserve Bank of New York said Wednesday that late next month it will add morning offerings for its liquidity providing Standing Repo Facility. The morning Standing Repo Facility, or SRF, operations will join with existing afternoon operations, and will be available starting June 26. "The additional daily morning SRF operations are intended to further enhance the effectiveness of the SRF in its ability to support the effective implementation of monetary policy and smooth market functioning," the bank said in a statement. The SRF was launched in 2021 in a bid to bolster the central bank's ability to provide liquidity to the financial system. It also helps the Fed keep the federal funds rate, its chief tool for influencing the course of the economy, in line with levels targeted by the rate-setting Federal Open Market Committee. The SRF takes in Treasury and agency securities from eligible firms in exchange for fast cash loans, and essentially makes available on a constant basis liquidity once provided by discretionary Fed repo operations. The tool has essentially gone unused through its lifespan with the exception of modest usage at the end of the third quarter last year, when money markets navigated a short-lived period of stress. Roberto Perli, the New York Fed official responsible for implementing monetary policy for the central bank, had been noting that morning operations would join those offered in the afternoon. "This will be an important step in enhancing the efficacy of the facility," Perli said last Thursday, and a more effective SRF could also allow the Fed to shrink its holdings of bonds by more than would otherwise be the case. He also nudged reluctant financial firms to tap the SRF, saying "I encourage our counterparties to use the SRF when it makes economic sense." The morning SRF availability will kick off on June 26, with the cadence of afternoon operations remaining as they are now. In a statement, the New York Fed said that it will cap total daily SRF operations at $500 billion. The closing time for the morning operations will be 8:30 a.m. ET. Early SRF operations have already been deployed around year and quarter ends, and while they have gone unused, some believe their availability helped bolster market confidence around periods that can be volatile in money markets. The New York Fed's SRF announcement followed closely on the heels of the release of minutes from the Fed's meeting minutes covering its early May Federal Open Market Committee meeting. The minutes weighed in heavily on the unsettled financial conditions that abounded in the run up to that gathering, spurred on by President Donald Trump's global trade war. While stress was real and broad based during that period, the minutes noted that Fed staff as well as policy makers saw orderly trading amid the tumult. Fed officials also signaled some concern on valuation levels in markets. The minutes also touched on the SRF, and noted "market outreach indicated that dealers had a higher willingness to use the facility when early settlement was offered." The minutes also said some Fed officials believed that a move to central clearing for the SRF might bolster usage in times of trouble. The looming launch of early SRF operations may not change much for now, however. Gennadiy Goldberg, head of U.S. rates strategy at TD Securities in New York, said "usage of the regular afternoon SRF currently stands at zero and we don't expect SRF usage to increase simply because of the added operation." "During times of stress, conducting twice daily operations will be helpful in helping to backstop markets," Goldberg said, adding "there will probably still be some stigma in using the facility, which is something the Fed has been battling against in recent years, but the additional operation should eventually prove helpful." Stigma issues have dogged parts of the Fed's lending operations for some time, because many financial firms believe that tapping central bank cash, even when encouraged to do so by central bankers, signals weakness. Stigma issues have been most acute for the Fed's Discount Window lending facility for deposit taking banks, but some have said these concerns extend to the SRF as well.
Yahoo
22-05-2025
- Business
- Yahoo
Fed's Perli encourages firms' use of Standing Repo Facility
By Michael S. Derby NEW YORK (Reuters) -A Federal Reserve Bank of New York official responsible for implementing monetary policy said on Thursday the central bank is encouraging usage of a key liquidity tool that thus far has been largely dormant. 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. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Mint
24-04-2025
- Business
- Mint
Analysts game out use of Fed toolkit if market needs central banks help
Fed toolkit includes Standing Repo Facility, Treasury debt buyback program Fed officials not rushing to intervene despite market volatility Experts suggest bond purchases could be last resort to stabilize markets NEW YORK, - Market participants unsettled by the Trump administration's choppy policy rollout are working to game out what the Federal Reserve would do if asset prices spiral out of control and require stabilization by the U.S. central bank. The anxiety arises from weeks of volatile trading and big price declines across a range of securities due to President Donald Trump's seesawing tariffs announcements, which are widely expected to stoke inflation while depressing growth and hiring. A more recent wave of price swings followed on the heels of Trump's attacks on the Fed for not cutting interest rates since he returned to power in January and his public musings about firing Fed Chair Jerome Powell. Recent trading has at points recalled the early moments of the COVID-19 pandemic. The Fed at that time responded by slashing short-term rates to near zero while buying trillions of dollars of Treasury bonds and mortgage-backed securities. It also launched programs to shore up specific sectors. If market conditions called for it, notable parts of that toolkit could be again brought out, bolstered by new tools and policy changes that would make this first line of defense operate largely on auto-pilot. "There's a toolkit in place if, if markets were really to stop functioning," said Patricia Zobel, former manager of the New York Fed group that implements monetary policy and now head of macroeconomic research and market strategy at Guggenheim Investments. She pointed to the Fed's Standing Repo Facility, a discount window emergency lending rate that now matches the top end of the federal funds rate, as well as a repo facility for central banks, as a suite of tools "which can support market functioning" when liquidity is an issue. Zobel also said an ongoing Treasury debt buyback program could also help manage liquidity if needed, adding that "in extremis," if cash markets were facing functioning issues, "ending balance sheet runoff would probably be the first order of business." Fed officials for now do not seem to be in any rush to step in. Powell last Wednesday was asked if the U.S. central bank would intervene if the stock market was falling sharply and replied, "I'm going to say no, with an explanation." Market tumult is tied to investors processing the big changes in policy pursued by the Trump administration, Powell said. But most importantly from the Fed's perspective, market plumbing is holding together and trading has been "orderly." And that's what's key for the Fed. Experts agree that if markets do run into trouble again, the Fed's still-massive balance sheet could be a tool, albeit one reached for with hesitancy. A market breakdown could cause the central bank to stop an already-slowed effort to reduce its holdings and could even drive it to start buying bonds again. Growing holdings again would be challenging because balance sheet expansion can be seen as a shift to stimulative monetary policy rather than just a move to stabilize markets. Some suggest the Fed could take a page from the Bank of England's playbook, which in 2022 used temporary asset purchases to settle UK bond markets upended by former Prime Minister Liz Truss' budget proposal. Buying bonds again "should be kind of a last line of defense," said Jeremy Stein, a former Fed governor who is now a professor at Harvard University. "But it's even more fraught now, because the last thing you want to be doing is signaling monetary policy is easing when you know there's such a worry over inflation." Stein joined other economists in a recently published paper that argued the Fed should set up a facility that could buy bonds and later sell them to target breakdowns that might emerge from a key type of hedge fund trade. That could distinguish any purely market-stabilization bond purchases from anything seen as a broader form of stimulus, which would be an issue with inflation still above the Fed's 2% target. That said, the simplicity of bond purchases ups the odds of usage for some. The Fed is "not going to be able to repo their way out of this if and when we get to that situation," and outright buying might be the most effective path to putting a floor underneath asset prices if that's what's called for, said Steven Kelly, associate director of research at the Yale School of Management's Program on Financial Stability. Before turning to asset buying, however, the automatic stabilizers Zobel pointed to would likely get the first workout, which means those tools' usage could also serve as indicators of market conditions. Of these options, the Standing Repo Facility, which allows Treasuries owned by eligible firms to be converted quickly into cash, looms largest. Launched in 2021, the SRF is aimed at preventing liquidity shortages. It's only gotten one notable round of usage so far, which happened last year. Troubled banks could also draw loans from the so-called Discount Window, which Fed officials have been encouraging as part of a broader bid to destigmatize this long-standing emergency lending facility. The Fed could, as it did in 2020, also use discretionary repo operations - buying Treasuries with an agreement to sell them back - for terms longer than overnight to also add liquidity to the system. This article was generated from an automated news agency feed without modifications to text. First Published: 24 Apr 2025, 03:31 PM IST
