Reuters writes "As Fed focuses long term, high short-term rates weigh on lending", which says, "The Federal Reserve's efforts to lower U.S. interest rates and increase borrowing to stimulate the economy may be running into a problem of the Fed's own making: the stubbornly high cost to borrow short-term funds is constraining the ability of banks to make cheap loans. The Fed has been selling short-dated Treasuries in order to finance its purchases of longer-dated government bonds. It hopes this will reduce longer-term interest rates and boost borrowing needed to raise spending and reduce the jobless rate. The sales have pushed up the cost to borrow in the vital $5 trillion repurchase agreement (repo), even though other borrowing rates have declined, as banks struggle under the weight of absorbing the short-term debt." The article adds, "Money funds increased their repo lending to record levels in July and August, where the loans topped 25 percent of the total assets of taxable money funds for the first time, according to data firm Crane Data. At the same time as the repo loans increased, loans made to government agencies that guarantee mortgages and to companies through commercial paper declined, Crane data show. Repo loans fell in September due to quarterly "window-dressing", but "October data will no doubt show a rebound," said Peter Crane, President at the firm."

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