Hitting the ceiling
Why the Fed was forced to intervene in short-term money markets
The repo rate spiked in an alarming echo of the financial crisis
The federal reserve had plenty to fret about as it prepared to discuss policy interest rates on September 17th and 18th. Trade tensions and wilting global growth have seen businesses cut back investment in the second quarter of the year. In manufacturing, production and capacity utilisation have been falling since the end of 2018. Though the Fed has described jobs growth as “solid”, some analysts worry that the labour market is wobbling. As expected, these concerns prompted the central bank to lower rates for the second time this year, by 0.25 percentage points, to a target of 1.75-2%. But the meeting was overshadowed by turmoil in money markets.
On September 17th, for the first time in a decade, the Fed injected cash into the short-term money market. The intervention was needed after the federal funds rate, at which banks can borrow from each