Fed's Standing Repo Facility hits record high as policy meeting outcome looms

Core Insights - The Federal Reserve's Standing Repo Facility (SRF) usage reached a record high since its inception in 2021, with financial firms borrowing slightly over $10 billion [1][3] - The collateral for this borrowing included $2 billion in Treasury bonds and $8.2 billion in mortgage-backed securities, indicating a significant reliance on the SRF despite its small volume compared to the broader repo market [2][3] - The increase in SRF usage coincides with rising money market rates, suggesting that the Fed's quantitative tightening (QT) may have removed too much liquidity from the financial system [3][4] Summary by Sections SRF Usage - The SRF recorded over $10 billion in loans, marking the highest usage level since its launch [1] - Collateralized borrowing consisted of $2 billion in Treasury bonds and $8.2 billion in mortgage-backed securities [2] Market Conditions - The uptick in money market rates is attributed to a rise in the federal funds rate, which is the Fed's primary tool for economic influence [3] - The current QT has reduced the Fed's balance sheet from a peak of $9 trillion in 2022 to $6.6 trillion [6] Future Expectations - Many analysts anticipate that the Federal Open Market Committee will lower the federal funds rate range by a quarter percentage point and may soon conclude the QT process [5] - The potential end of QT could alleviate downward pressure on market liquidity and allow money market rates to decrease [6][7]