The Federal Reserve may consider tweaking how much it pays mortgage agencies, mo...
NEW YORK - The Federal Reserve may consider tweaking how much it pays mortgage agencies, money market funds and other non-banks in certain Treasury-backed transactions, the U.S. central bank’s minutes released on Wednesday showed.
The minutes also showed that the Fed’s current patient approach to setting monetary policy could remain in place “for some time.”Reverse repos, together with the interest the Fed pays banks on reserves they keep at the Fed and the term deposit facility, helped the Fed manage short-term interest rates after it raised them from rock-bottom levels after the 2008 global financial crisis.
The goal was for the reverse repo transactions to set a “floor” below which short-term rates would not fall. But policymakers do not want too many institutions to participate because, among other risks, that could draw money out of markets where people borrow. Short-term rates spiked last month as people withdrew money to pay tax bills, forcing banks to pay more for liquidity, Reuters reported.
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