The Fed discussed the design of a possible permanent pension facility, according to the minutes



An eagle looms over the facade of the US Federal Reserve building in Washington, July 31, 2013. REUTERS / Jonathan Ernst / File Photo

July 7 (Reuters) – Federal Reserve officials continued to discuss in June how they could potentially structure a permanent facility to support U.S. money markets, according to the minutes of the latest central bank policy meeting released Wednesday.

A “substantial majority” of Fed policymakers reiterated their support for such a program, which would allow eligible financial institutions to borrow short-term money as needed, saying “the potential benefits of such a facility outweighed the potential costs, “minutes of the June 15-16 meeting.

Several participants said the facility should be positioned as a “backstop” to the markets, while some said it was important not to charge such a high rate that the program would be stigmatized.

In a plan presented to Fed officials, the facility would charge a minimum of 0.25% to companies borrowing overnight money, the high end of the target range for the benchmark overnight interest rate. from the Fed. Under this approach, the facility would be open to primary traders, then later expanded to include interested banks.

Several participants in the discussion said that it may be appropriate to adjust the rate over time depending on the economy or market conditions.

The Fed began intervening in money markets in the fall of 2019 after the banking system’s reserves fell too low, causing short-term borrowing costs to skyrocket. Money markets were rocked again in March 2020 when the coronavirus pandemic led to a race for liquidity, forcing the Fed to increase its repo offers.

In April, Fed officials discussed how the support available through a standing facility could allow the central bank to automatically respond to market pressures.

In recent months, however, the Fed has faced the opposite problem – excess liquidity in the banking system. read more Use of the Fed’s reverse repo facility, which allows companies to temporarily park liquidity with the central bank, hit a record high of $ 992 billion on June 30.

Reporting by Jonnelle Marte Editing by Paul Simao

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