The Federal Reserve injected another $75 billion into the U.S. banking system on...
NEW YORK - The Federal Reserve injected another $75 billion into the U.S. banking system on Wednesday, restoring a measure of order after a bout of extreme volatility inside the bank funding market drove the central bank’s benchmark interest rate above its targeted range for the first time since the financial crisis.
This puts pressure on Fed officials to come up with long-term fixes - such as a standing repo facility and cutting interest on what they pay on excess reserves and growing its balance sheet - to avert further volatility in funding markets and to add more permanent reserves into the banking system, analysts said.On Tuesday, the “effective” or average interest rate in the federal funds market, which the Fed aims to influence, hit 2.30%, above the top-end of the Fed’s current range of 2.25%.
“In that respect, it can be a confidence-sapping development unless they get it under control relatively quickly,” he said. Analysts have blamed quarterly corporate tax payments and settlement on $78 billion in coupon-bearing Treasury securities on Monday for a severe drop in cash for wholesale lending.
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