FOMC Minutes Discuss Rates, Repo
The FOMC's "Minutes of the Federal Open Market Committee, July 30–31, 2024, which were released on Wednesday, state, "Nominal Treasury yields declined over the period, with shorter-term yields having decreased by more than longer-term yields, leading to a steepening of the yield curve.... The effective federal funds rate remained unchanged over the intermeeting period, but the manager noted that rates on repurchase agreements (repo) had edged higher, reflecting increased demand for financing Treasury securities as well as the expected effects of gradual balance sheet normalization. Use of the overnight reverse repo (ON RRP) facility declined slightly over the intermeeting period. The staff projected that ON RRP usage would decline more noticeably over the remainder of the year, particularly as issuance of Treasury bills increases. However, the manager noted that it was possible that idiosyncratic factors specific to some ON RRP participants might support ON RRP balances in the months ahead. Looking at a range of money market indicators, the manager concluded that reserves remained abundant but indicated that the staff would continue to closely monitor developments in money markets. Finally, the manager described a set of technical adjustments to the production of the Secured Overnight Financing Rate that the Federal Reserve Bank of New York had proposed in a recent public consultation." The Minutes continue, "Overnight secured rates edged up over the intermeeting period, but conditions in U.S. short-term funding markets remained stable, with typical dynamics observed surrounding quarter-end. Average usage of the ON RRP facility declined slightly. Banks' total deposit levels increased modestly, as large time deposits displayed moderate inflows." They say, "In their discussion of financial stability, participants who commented noted vulnerabilities to the financial system that they assessed warranted monitoring. Some participants observed that the banking system was sound but noted risks associated with unrealized losses on securities, reliance on uninsured deposits, and interconnections with nonbank financial intermediaries." The Minutes add, "In support of the Committee's goals to achieve maximum employment and inflation at the rate of 2 percent over the longer run, members agreed to maintain the target range for the federal funds rate at 5 1/4 to 5 1/2 percent. Members concurred that, in considering any adjustments to the target range for the federal funds rate, they would carefully assess incoming data, the evolving outlook, and the balance of risks. Members agreed that they did not expect that it would be appropriate to reduce the target range until they had gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, members agreed to continue to reduce the Federal Reserve's holdings of Treasury securities and agency debt and agency mortgage backed securities. All members affirmed their strong commitment to returning inflation to the Committee's 2 percent objective."
