The Fed might open new tool to manage interest rates; launch date remains unknown

The Federal Reserve has been in talks with financial institutions regarding the introduction of a new tool to help control interest rates, Bloomberg writes. For now, however, Wall Street remains uncertain as to when, if at all, such a tool could be implemented.

During the last Federal Open Market Committee meeting, there were talks about “the possible role in monetary policy implementation of a standing repurchase agreement facility,” Bloomberg writes. If adopted, it would introduce a mechanism to convert Treasuries into reserves on demand. It would then allow banks to gain more control over short-end interest rate.

At the meetings, officials were briefed about the possible standing repo facility.

Not everyone believes such a facility is necessary at all—NatWest Markets remains “still lukewarm on the whole idea.” Those more optimistic, like BMO Capital Markets and Curvature Securities, believe the facility could start operations by the end of the year. JPMorgan Securities and Wrightson ICAP do not believe the facility will launch before December.