Money Market Stress Cannot Be Solved By $60 Billion Monthly Cash Injection
JP Morgan Analysts wrote that recent pressures on the U.S. money market aren't likely to be solved by the Federal Reserve's latest capital injections, according to Markets Insider.
Starting on October 15, The Federal Reserve has been purchasing about $60 billion worth of U.S. Treasury notes every month. Analysts stated that the issue with this method lies within the fact the capital will probably remain with the primary lenders and the non-primary lenders are the ones that need it the most.
"We recommend viewing these moves as highlighting the limitations of the Fed's chosen solution to their operational issues," the analysts said. The fed has been attempting to control its benchmark interest rate. The primary banks approved to purchase and borrow directly from the fed are receiving the funding, while the non-primary firms are left with little additional liquidity.
The Fed's interest rate breached its intended range in September due to a scarcity of lenders which lead to a spike in yields. This spike in yields led the Fed to begin injecting money and increasing the liquidity of the lending market. Unfortunately, analysts reported that the new funding will face the same difficulties that created funding issues in the first place.
The Federal Open Market Committee is scheduled to meet on October 29 to discuss monetary policy and potentially cut interest rates further. The interest rate cut could potentially help relieve some of the money market stress.