NEW YORK - Wall Street’s worst fears of a year-end funding squeeze never materialized thanks in large part to the quarter-trillion dollars the Federal Reserve stuffed into the market to ensure nothing became gummed up.
“The repo operations are a band-aid, but the wound isn’t healed fully,” said Gennadiy Goldberg, an interest rate strategist at TD Securities. “It seems implausible to me that the Fed will be able to stop their repo operations by the end of January,” said Mark Cabana, head of U.S. rates strategy at Bank of America Merrill Lynch.
“There are people at the Fed who have a preference for the smallest possible balance sheet, and we just don’t know how much their views have evolved,” said Lou Crandall, chief economist at Wrightson ICAP, a research firm. Richmond Fed President Thomas Barkin said on Friday that in addition to a standing repo facility, long-term fixes for providing more liquidity in money markets could include adjusting liquidity regulations and setting restrictions on other programs that can affect reserves, such as the foreign repo pool.
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