Category: economy

The post Wall Street warns money-market stress could push Fed into rapid intervention appeared com. Wall Street analysts cautioned that renewed strain in US money markets could prompt the Fed to step in sooner to contain another surge in short-term borrowing costs. This week, short-term funding rates have leveled off, following jitters in late October that raised red flags within the financial system’s core operations. Just last week, the tri-party repo rate rose to levels not seen since 2020, despite the central bank’s confirmation that it will pause balance-sheet runoff on December 1. Now, tri-party repo rates have settled closer to the Fed’s rate on reserves, reflecting calmer market conditions. However, many still see the potential for renewed volatility in the weeks ahead. Deirdre Dunn, head of rates at Wall Street bank Citigroup, and chair of the Treasury Borrowing Advisory Committee, commented, “I don’t think it was a one-off anomaly of just a few days of volatility.” Analysts say the central bank may have to continue asset purchases Curvature Securities’ Scott Skyrm noted markets have “normalized” for now, as banks tapped a Fed facility to ease strain. Still, he cautioned that funding pressures will likely resurface at the turn of the month and again at year-end. Echoing those concerns, Samuel Earl, a US rate strategist at Barclays, emphasized that funding conditions remain vulnerable to change. Some analysts and policymakers believe the Fed may eventually need to resume asset purchases if the strain doesn’t subside. Lorie Logan, head of the Dallas Fed and a former market expert at the New York Fed, particularly noted that the central bank may need to consider asset purchases if repo rates remain elevated. Meanwhile, Dunn advocated that the central bank consider additional solutions. He remarked: “One could argue that we’re not in an ample reserve environment anymore and these events could continue to happen . It would be prudent for the Fed.