Democratic senators have sent a letter to Federal Reserve Chairman Jerome Powell seeking answers about the central bank’s large repo-market operations to calm money market strains that erupted in September.
The letter on Thursday comes ahead of Powell’s scheduled testimony before the Senate Banking Committee on Feb. 12.
The senators, including committee ranking member Sherrod Brown of Ohio, posed a series of questions about why the Fed has undertaken repo operation on a scale not seen since the financial crisis.
The Fed has pumped hundreds of billions of dollars into overnight money market via repurchase agreements in response to volatility in money markets.
Demand from banks for the cash continues to be strong. The Federal Reserve Bank of New York’s $30 billion operation to inject cash into the financing system for the next two weeks was oversubscribed on Thursday, the second such action in a row to attract bids in excess of the offering size.
The Fed last week indicated that it’s not ready to abandon the support its been providing since the upheaval, announcing that it will continue to conduct term and overnight repo operations at least through April 2020. It will adjust their size and pricing as the central bank shifts away from using them to provide more reserves to the banking system, Powell said Jan. 29.
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