There Is No Short Term Money Market

Jon Banking, Economy, Fiscal Policies, Market Commentary

The Fed has ‘raised interest rates’ (wink-wink). Its primary tools in this make believe policy are interest on excess reserves (IOER) and the interest paid on reverse repos (RRP). The new Fed Funs target rate is now 25-50 bp. Fed Funs were reported to be trading at a weighted average rate of 36 bp on December 22.
Of course, there is no actual Fed Funds market. Fed Funds are the money that banks who were short of reserves borrowed from banks which had excess reserves, so that they could meet the minimum reserve requirement. In 2008, the amount of Fed Funds outstanding rose as high as $450 billion. Over the past 7 years, as the Fed pumped $2.6 trillion of excess reserves into the system, virtually no banks have been short of reserves, so the amount of Fed Funds outstanding shrank to $50 billion.

This post was published at Wall Street Examiner by Lee Adler ‘ December 23, 2015.