Fed Acts to Calm Money Markets

The transcript discusses the Federal Reserve's challenges in controlling short-term interest rates, highlighting market concerns about the Fed's credibility. It covers the New York Fed's efforts to regain control through repo operations and the potential establishment of a standing repo facility. The discussion also delves into the reasons behind the funding squeeze, including structural issues and seasonality, and examines the impact of increased Treasury supply and post-crisis regulatory structures on the market.

What is the main concern when the Federal Reserve loses control over short-term interest rates?

• It leads to higher inflation.

• It results in increased unemployment.

• It causes a stock market crash.

• It becomes a credibility issue.

What is the New York Fed's current approach to managing short-term rate control issues?

• Conducting repo operations.

• Reducing government spending.

• Implementing a new tax policy.

• Increasing interest rates.

What is a significant challenge in implementing a standing repo facility?

• Determining the counterparties.

• Reducing inflation.

• Setting a fixed interest rate.

• Increasing employment.

What is one of the structural issues affecting the funding squeeze?

• Increased consumer spending.

• Regulatory structures post-financial crisis.

• Decreased foreign investment.

• Seasonal changes in demand.

How has the Treasury's actions contributed to the funding squeeze?

• By lowering interest rates.

• By increasing the supply of Treasury securities.

• By increasing taxes.

• By reducing the supply of bonds.