Federated's "Month in Cash"
Federated Investors' Debbie Cunningham writes in her latest "Month in Cash: Wanted -- More Fed governors," Companies and hockey teams adapt well to being shorthanded, but when votes are involved or diverse viewpoints are needed, being even one person down can create problems. So it has been for some time now at the Federal Reserve (Fed) as the molasses pace of confirmation has left the central bank short-staffed for months. It still has three seats out of seven open on its board of governors, nearly a majority, and that's only the case because the Senate confirmed Stanley Fischer to the board the day that governor Jeremy Stein stepped down, Wednesday, May 28. Considering that the governors of the board make up a majority of the twelve member crucial monetary policy-making Federal Open Market Committee (FOMC) (the others being the presidents of some of the regional Fed banks), three open seats represents a significant shortage that has serious consequences from the standpoint of the U.S. economy, not to mention the world. Even if new voices on the FOMC didn't alter a particular vote on policy which is still data driven, we at least would get more viewpoints in speeches, in published dissents and in the influential "dots" chart of rising interest rate projections.... In the meantime, there hasn't been much rate change in the marketplace. The London interbank offered rate (Libor) was completely unchanged and Treasury bills were around a basis point lower. We have not altered our weighted average maturity (WAM) targets at this point because the yield curve has not changed based on any kind of expectations of future tightening at this point. Repo continues to be driven by the overnight fixed-rate reverse repo facility from the New York Fed at five basis points. Probably over the course of the last month we have seen more people going to this and abandoning at least some of their traditional counterparts to a larger degree than we had in the past. We haven't seen major players leave the repo market, but certainly the banking regulations and how they are impacted by capital, leverage and liquidity requirements is allowing them to reduce their book and the Fed is taking over some of that supply."
