Fed’s ability to set rates floor is weakening on cash deluge

The Fed at its June meeting had raised the rate by five basis points to help support the smooth functioning of short-term funding markets.

NEW YORK: The Federal Reserve’s (Fed) floor for overnight funding markets is proving to be no match for the deluge of cash.

Money-market securities ranging from Treasury bills to repurchase agreements continue to trade below 0.05% – the offering rate on the overnight (ON) reverse repo (RRP) facility, which is supposed to act like a floor for the front end.