MNI BRIEF: Fed Repo Facility Will Cap Rate Pressures- Williams

The Federal Reserve standing repo facility will effectively cap temporary upward pressure on money market rates as long as primary dealers and banks use it, New York Fed President John Williams said Wednesday, also repeating the Fed is assessing market indicators to decide when to begin gradual expansion of its balance sheet. 

"The SRF’s effectiveness relies on market participants availing themselves of the SRF based on market conditions, free of worries about stigma or other impediments. I fully expect that the SRF will continue to be actively used in this way and contain upward pressures on money market rates." 

Setting the SRF rate at the top of the fed funds rate target range reduces day-to-day reliance on the backstop "except during periods of significant upward pressure on rates resulting from strong liquidity demand or market stress," he added. 

Williams repeated he is closely monitoring a variety of market indicators related to the fed funds market, repo market and payments to help assess the state of reserve demand conditions. "Based on recent sustained repo market pressures and other growing signs of reserves moving from abundant to ample, I expect that it will not be long before we reach ample reserves," he said. (See: MNI POLICY: Fed To Start Gradual Asset Purchases Within Months)