© Reuters. FILE PHOTO: A man passes by the Federal Reserve Bank of New York in New York City, U.S., March 13, 2023. REUTERS/Brendan McDermid/File Photo
By Michael S. Derby
NEW YORK (Reuters) – The Federal Reserve Bank of New York has seen a surge in inflows to its overnight reverse repo facility, reaching an impressive $1.018 trillion on the final trading day of the year.
Friday’s inflows exceeded expectations, surpassing the $829.6 billion seen on Thursday and marking the first time crossing $1 trillion since Nov. 13.
The Fed’s reverse repo facility plays a crucial role in influencing the economy to achieve its employment and inflation mandates, and the recent surge in inflows indicates a strong interest in short-term interest rates. This has been particularly noteworthy given the facility’s peak at a record $2.6 trillion in December 2022, following the Fed’s stimulus measures.
However, recent weeks have seen a noticeable decrease in the facility’s size, as the Fed continues to reduce liquidity, and other money market securities become more attractive to investors compared to the 5.30% rate offered on reverse repos.
It’s common for firms eligible to use the reverse repo facility to do so more aggressively in the final days of the year, and some analysts predict that the surge will quickly dissipate. Wrightson ICAP (LON:) forecasts about a $400 billion decline in reverse repo inflows over the next week or so.
The New York Fed also reported zero inflows into its Standing Repo Facility on Friday, indicating that any dislocations or liquidity needs in money markets were not significant.
