The Fed’s Tool for Calming Short-Term Funding Markets Is Being Tested

2025-11-24 18:08

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The Fed’s Tool for Calming Short-Term Funding Markets Is Being Tested

Fed Chair Jerome Powell at a meeting in Washington last month. Aaron Schwartz/EPA/Shutterstock By Matt Grossman and Sam GoldfarbThe Federal Reserve is struggling to persuade some banks to use a lendin...

Jerome Powell (C) and other participants at a U.S. Federal Reserve board meeting.

Fed Chair Jerome Powell at a meeting in Washington last month. Aaron Schwartz/EPA/Shutterstock

Matt Grossman

and

Sam Goldfarb

The Federal Reserve is struggling to persuade some banks to use a lending tool designed to improve the central bank’s control over short-term money markets.

Banks have made more use of the tool, called the standing repo facility, over the past month. But there are signs some are reluctant to tap it more aggressively, which would make it easier for the Fed to maintain a firm grip on rates as it winds down shrinking its $6.6 trillion asset portfolio. At a recent private meeting, some executives told the New York Fed they worry using the facility would carry a stigma, undermining the tool’s purpose as volatility increases.