Fed weighs cutting rate on bank reserves after repo fix – Bloomberg

Fed weighs cutting rate on bank reserves after repo fix – Bloomberg

Federal Reserve officials are renewing a debate over cutting interest paid to banks on excess reserves, a move aimed at convincing investors that tapering its bond-buying isn’t the same as tightening its monetary policy.
Lowering the rate, now 0.25 percent, is among “ideas that are still in play” as the central bank seeks to improve the way it communicates the outlook for interest rates, Atlanta Fed President Dennis Lockhart said on Dec. 5.
The debate was revived as the Fed successfully tests a new policy involving so-called reverse repurchase transactions that would give it greater control over short-term borrowing costs. That may ease concern that cutting the interest rate on excess reserves could wreak havoc by pushing rates to zero or lower in money markets. Holdings in money market mutual funds total about $2.7 trillion, according to research firm iMoneyNet in Westborough, Massachusetts.