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Report: NY Fed defends response to money market turmoil

The Federal Reserve Bank of New York dismissed criticism that it acted a little late to intervene in the overnight repurchase market last week, which marked the first such intervention from the New York Fed since the financial crisis, the Financial Times reported, citing NY Fed President John Williams.

The New York Fed on Sept. 17 conducted $53.15 billion in repo purchases to help add liquidity to short-term funding markets, which experienced significant spikes in rates a day earlier. Spikes in short-term borrowing rates helped lead to a jump in the Fed's benchmark federal funds rate, which soared to 2.25% on Sept. 16, up from 2.14% on Sept. 13.

Repo rates climbed to 10% on Sept. 17, leading a series of repo operations during that week, with the Fed announcing Sept. 20 that it will conduct repo operations up until Oct. 10, with each operation purchasing $75 billion or more.

Markets wanted the Fed to have acted sooner, as repo rates rose Sept. 16 amid tax payments and Treasury settlements that resulted in cash outflows.

Williams defended the Fed, telling the FT that "there was no delay in decision making or communication lags. It was really about getting the right information, and analyzing it carefully."

Repo rates declined to 1.75% late on Sept. 19, Reuters reported, citing Refinitiv data.

The New York Fed is reportedly looking at why banks with excess liquidity did not lend to the repo market.