Fed’s Ability to Set Rates Floor Is Weakening on Cash Deluge
- Supply-demand imbalances drive money-market rates toward zero
- Central bank tweak isn’t a panacea, JPMorgan strategists say
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The Federal Reserve’s floor for overnight funding markets is proving to be no match for the deluge of cash.
Money-market securities ranging from Treasury bills to repurchase agreements continue to trade below 0.05% -- the offering rate on the overnight reverse repo facility, which is supposed to act like a floor for the front end. The Fed at its June meeting had raised the rate by five basis points to help support the smooth functioning of short-term funding markets.