Fed’s push into funding markets stirs fears of widening role
By Victoria Guida
The Federal Reserve’s latest effort to calm the financial system — pumping $100 billion a day into trillion-dollar funding markets — is intended to be a temporary role, born of necessity. But it may turn out to be a significant expansion of the Fed’s footprint. …“The biggest danger of the Fed staying in the repo market is that it cements the expectation that the U.S. central bank will protect not just banks in a liquidity squeeze but volatile markets that are inconvenient to monetary policy,” said Karen Petrou, managing partner at Federal Financial Analytics, which advises financial institutions. “That’s moral hazard.”