Money Funds Zero Pain to Worsen as Fed Maneuvers: Credit Markets

The central bank is working out how best to control short-term rates after its bond buying policies aimed at suppressing borrowing costs and stimulate economic growth flooded the banking system with $2.71 trillion of excess reserves. The Fed, which is forecast to start raising rates next year, surprised market participants earlier this month when it placed a limit on how much cash it will take out of the system each night through its reverse repurchase agreement program.

...To pull that off, the Fed’s repo program might have to be as large at $1 trillion, according to Wrightson ICAP LLC.

“To achieve their goal, they will have to raise the cap,” Lou Crandall, chief economist at Wrightson in Jersey City, New Jersey, said Sept. 18 in a phone interview.