January 3, 2016
Three curious events at year-end
First, on December 31, 2015, the Fed sold an unprecedented $475 billion in Treasury securities to banks, brokers and funds through its reverse repo facility. This was the highest amount sold through the facility and was 40% greater than the prior high 18 months ago.
Second, a key money market reference rate, the general collateral finance (GCF) repo rate, recently shot to 0.55%, which is sharply above the Federal Reserve’s upper target of 0.50% for the Fed Funds rate.
Third, according to preliminary data from banks, the actual Fed Funds rate crashed to 0.12% as of year-end, which is far below the minimum 0.25% floor the Fed is targeting. Although it is normal for the Fed Funds rate to dip lower at quarter-end and year-end because of peculiarities of the Fed Funds market itself, a divergence this great was unexpected.