The conversations are part of ongoing preparations for a probable end later this year to the Fed’s rolloff of bond holdings. The process will complete the gradual shrinking of its balance sheet, which ballooned to $4.5 trillion in the aftermath of the crisis as the Fed bought assets to lower borrowing costs. It now stands close to $4 trillion.
Minutes of December’s policy meeting indicated that some officials expressed an interest in learning more about possible options for new ceiling tools to provide firmer control of the policy rate. An account of January’smeeting mentioned a year-end spike in rates for repurchase agreements, which occurred during a reduction in overnight lending as market participants shored up balance sheets for regulatory purposes. This saw the highest repo rates since 2001.
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One possibility for providing a ceiling could be a standing Fed facility at which it would offer funds.
The Fed markets group also inquired as to where the rate should be set relative to the interest on excess reserves rate, two of the people familiar said. They also asked about how frequently the operations should be conducted, whether daily or only at quarter-end and year-end, the people familiar said.
Gluon Corp claims it can replace the Fed with a thousand lines of code. The Fed is looking to beat Gluon to the punch with a 900 line version. I have the edge, I have kidnapped two Russian mathematicians, and primary dealings got squat.
The Fed is also very interest in my reform of getting large state agencies to open accounts at the Fed. They talked about it in yesterday's meeting but won't tell us for a few months. The idea makes sense and is quite Pareto efficient. This is us, prepping to do a better 1972.
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