In the latest meeting of 2019, the policymakers of the US Federal Reserve have concluded that the interest rate for 2020 will be on hold for some time now as the central bank is looking forward to introducing fresh new alterations in their monetary policy. The authority was fundamentally meaning to knit-in the changes to facilitate enhanced liquidity in the financial markets and introduce a repurchase facility.
If we look back at the consensus submitted by the Central bank in 2019 we will see that it did everything to ensure that the country’s economy is safeguarded against the impending downturn by reducing rates multiple times in the year. As per the claims of the minutes, the participants of the meeting had a debate on whether or not it would be beneficial to keep up with the target range of their federal fund rates. Furthermore, they were also of the opinion that keeping the rates stagnant for a while will not bring about too many ordeals as long as the economy treads on the right path. Nevertheless, the U.S. stock prices stuck to their losses because the overall market scenario was already agitated as a direct consequence of the US airstrike in which Qassem Solieimani, the chief of Iran Quds Force was killed.
According to affirmations, the committee is planning to review the statement published later in 2019 somewhere around June and July of 2020. Additionally, the minutes also stated that the policymakers also pondered upon a series of future topics such as the probable change that the standing repo facility can bring about with it, the optimum regulation of the administered rates and the potential arrangement of the federal’s treasury holdings.
The country was surprised with a modification of bank funding markets in September last year; the borrowing costs of the banks were increased to a whopping 10% which is more than four times higher of the Federal’s lending rate. Following this, the central banks loaned about US$50 billion a day and the amenity of short-term credit in favor of banks through the repurchase deals. In October, these dimensions witnessed a different turn altogether; the bank took resort to invariably stretching the limits of its balance sheets and thereby, enhancing its reserves by procuring Treasury bills for US$60 billion during a month.
Nevertheless, both the Federal and Wall-street were doubtful about the year –ending scenario because the graph explains that the latter months of the year come across unparalleled demands to obtain enough resources that will get them through the remaining portion. As 2019 was nearing towards the end, the Fed introduced a sum of about US$250 billion to steer away from the possibility of the rates repeating their September surge and now it appears to have prevented the uncontrolled rose of borrowing costs.
It is reported that a Fed staff informed the policymakers during Dec 10-11 that they might have produced the repo operations at least by April this year to continue with the regular functioning. Moreover, it was also specified that some of the future Treasury bill acquirements can have generous effects on the fluctuating realms of the bill market liquidity.
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