FYI: The Federal Reserve intervened in money markets for four days straight this week to keep interest rates under control. It was the first time in more than a decade it has done that.
Historically, instability in money markets has been a sign of trouble in the financial system, and this time it had some market observers wringing their hands. But there is no reason to panic, however unsettling the spike in short-term rates might have been.
Interest rates in the repurchase-agreement market—or repo market—are normally fairly close to the Fed’s policy rate. But some traders were paying interest rates above 9% on Tuesday—far above the range of 2%-2.25% that the Fed was targeting at the time. (The central bank has since cut its target range to 1.75%-2%.)
Regards,
Ted
