US Federal Reserve policy.
The US repurchase agreement (repo) rate, the interest rate on overnight loans backed by Treasury securities to facilitate a range of transactions, suddenly soared above 5% on September 15, 2019. There were immediate effects across financial markets, but the Federal Reserve (Fed) quickly bought up Treasury bills and the repo rate returned to the Fed’s 2.00-2.25% target range. However, concerns linger about whether a spike could recur. The Fed has increased its balance sheet by more than 10% since September but sees this as a temporary adjustment rather than a policy change.
Having narrowed to 3.7 trillion dollars by August 2019, the Fed’s balance sheet could pass its 4.4-trillion-dollar record this year.
The Fed will seek to ensure its has enough resources for corporate-tax payment dates but without increasing its holdings indefinitely.
Increasing the size of the Fed’s balance sheet could limit the effectiveness of further balance sheet expansion in a future crisis.
