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2 Minutes Read FILE PHOTO: On July 31, 2013, an eagle atop the US Federal Reserve building’s exterior in Washington, D.C. (Reuters) – REUTERS/Jonathan Ernst/File Photo According to minutes from the Federal Reserve’s most recent policy meeting released on Wednesday, policymakers continued to debate how they may establish a permanent facility to support U.S. money markets in June. According to the minutes from the June 15-16 meeting, a “substantial majority” of Fed policymakers reiterated their support for such a program, which would allow eligible financial institutions to borrow cash on a short-term basis as needed, saying “the potential benefits of such a facility outweighed the potential costs.” Several participants stated that the facility should be positioned as a “backstop” for markets, while others stated that charging a large premium would stigmatize the program. According to one proposal offered to Fed officials, the facility would charge corporations borrowing cash overnight a minimum of 0.25 percent, which is the top of the target range for the Fed’s overnight benchmark interest rate. The facility would be open to main dealers first, and then expanded to include banks who were interested afterwards. Several participants in the discussion suggested that, depending on the economy or market conditions, it would be reasonable to change the rate over time. After the banking system’s reserves fell too low, causing a surge in short-term borrowing costs, the Fed began intervening in money markets in the fall of 2019. The money markets were jolted once more in March 2020, when the coronavirus epidemic prompted a rush for cash, forcing the Fed to raise its repo offerings. Officials from the Federal Reserve discussed in April how having the support available through a permanent facility would allow the central bank to respond to market pressures automatically. The Fed, on the other hand, has been dealing with the opposite problem in recent months: a surplus of cash in the banking system. On June 30, use of the Fed’s reverse repo program, which allows businesses to temporarily lodge cash with the central bank, hit a new high of $992 billion. Jonnelle Marte contributed reporting, and Paul Simao edited the piece./nRead More

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