Fed Minutes on Year-End Pressures
The latest "Minutes of the Federal Open Market Committee, January 30-31, 2018," which were released last week, tell us, "The deputy manager followed with a discussion of recent developments in money markets and FOMC operations. Year-end pressures were evident in the market for foreign exchange basis swaps, but conditions returned to normal early in 2018. Yields on Treasury bills maturing in early March were elevated, reflecting investors' concerns about the possibility that a failure to raise the federal debt ceiling could affect the timing of principal payments for these securities.... The deputy manager also reported on the volume of overnight reverse repurchase agreement operations over the intermeeting period and discussed the Desk's plans for small-value operational tests of various types of open market operations over the coming year." The Minutes add, "The FOMC's decision at its December meeting to raise the target range for the federal funds rate was transmitted smoothly to money market rates. The effective fed-eral funds rate held steady at a level near the middle of the target range except at year-end. While borrowing costs moved up briefly in offshore dollar funding markets over year-end, conditions in money markets were reported to be orderly. In line with recent year-end ex-periences, rates and volumes in the federal funds and Eurodollar markets declined, while in secured markets, rates on Treasury repurchase agreements increased. After year-end, pressures in money markets abated quickly and rates and volumes returned to recent ranges."
