Oh booooy. More Fed-Rigging. Trump and Dump most likely to follow. https://www.barrons.com/articles/federal-reserve-standing-repo-money-markets-51578091428 The Federal Reserve is going to discuss permanent steps that should help it control interest rates and limit volatility in money markets, according to the minutes of its December meeting. The central bank increased the size of its interventions in money markets last month, and had an average $235 billion of cash loans outstanding each day over the last days of December, according to Wrightson ICAP. Interest rates were stable at the end of the year as a result, even though year-end is traditionally a tricky time in money markets. Rates spiked higher in mid-September, surprising investors. In their Dec. 10-11 meeting, officials made plans to discuss more permanent ways to smooth trading in money markets. “Various participants remarked on issues related to the implementation of monetary policy, highlighting topics for further discussion at future meetings,” the meeting minutes said. “Among the topics mentioned were the potential role of a standing repo facility in an ample-reserves regime, the setting of administered rates, and the composition of the Federal Reserve’s holdings of Treasury securities over the longer run.” A “standing repo facility” would be a permanent outlet for banks or bond dealers to borrow cash through repurchase agreements or “repo” transactions with the Fed. Using such a facility, banks would sell their Treasury securities to the Fed and agree to buy those bonds back on a future date, basically pledging their Treasuries as collateral for cash loans from the Fed. The Fed is doing repo transactions with banks and bond dealers as part of its year-end intervention, and that is likely to continue into the first quarter of this year. But because it doesn’t have a permanent facility open for those transactions, it has been announcing the details of its repo offerings on a monthly basis. Analysts have been discussing this type of permanent facility for months. The conversation has drawn more attention since repo rates rose sharply in mid-September. That month’s jump in interest rates was attributed to a tax-payment date and a series of new Treasuries hitting the market. But it was also a sign that the Fed reduced the size of its bond portfolio too much as it scaled back its holdings of debt purchased under quantitative easing, its postcrisis effort to prop up the economy. In other words, bond traders had more Treasuries and less cash on their balance sheets than they wanted. Another way the Fed has been managing interest rates is by growing its bond portfolio again. The central bank says its purchases aren’t economic stimulus, and that its renewed purchases are meant to correct the excessive reduction of its balance sheet’s size. There are still questions about the type of bonds it will buy, or the “composition” of its balance sheet. The central bank has limited its $60 billion of monthly purchases to the market for Treasury bills. It plans to start reducing that buying in coming months, once the purchases have put enough cash into the financial system to prevent future interest-rate spikes. In the meantime, at least one Wall Street strategist has called for the Fed to buy longer-term Treasuries—securities that pay coupons—instead of bills, which don’t pay coupons and mature in a year or less. Other strategists say that type of move would blur the lines between its quantitative-easing stimulus efforts and the balance-sheet adjustment that it is targeting with the bill purchases. Officials said in the latest meeting minutes that they could split the difference between those two views, to ensure that the Fed doesn’t own an outsize share of the bill market if the Treasury reduces its bill issuance. If the Treasury cuts down on bill issuance for seasonal reasons, like tax season or the debt ceiling, the Fed also discussed buying coupon-bearing Treasuries that are close to their maturity date. (For example, it could buy two-year notes that have been outstanding for more than a year, since those notes have less than a year left before they mature.) “Purchases of these short-dated securities would not affect broader financial conditions or the stance of monetary policy,” the minutes said. As for its current repo operations, the central bank plans to start to reduce the amount of liquidity it is offering the market starting this month. But it said “some repos might be needed at least through April, when tax payments will sharply reduce reserve levels.”