Scrambled Eggs

The Fed’s Latest Policy Directive: ‘FSSF-Off’

‘Tough it out’ seems to be a monetary policy that’s working so far! Despite the emerging cracks elsewhere, a degree of (temporary) calm has settled over US funding markets, with repo spreads falling back as the weekend approached and the SRF (Standing Repo Facility) volumes plunging. See SOFR chart below. Dallas Fed boss Lorrie Logan (former Fed plumber-in-chief) first characterised the Central Bank’s policy a few weeks ago by saying (in so many words) that if you want to make an omelette (i.e. reduce banks’ large reserve holdings) we have to break eggs (i.e. repo spreads will blow out). It is a policy that should and did frighten investors!