Fed paper explores rate hike impact on money markets
Monetary tightening likely to impact flows in and out of Fed’s overnight repo facility
Research published by the Federal Reserve estimates how money markets will readjust as the central bank hikes rates and sells assets.
Tighter policy is likely to set off a complicated series of fund flows. The Fed is keen to understand where the money will end up, to avoid a repeat of the 2019 spike in repo market rates.
The working paper highlights how a rising policy rate tends to increase the spread between rates offered by money market funds (MMFs) and those on bank deposits. The authors
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