The Fed’s rate freeze will mean nothing unless banks fix a repo market bottleneck

The Federal Reserve held its rate target range at 3.75%-4% on Oct. 28, with operating instructions effective the following day setting out how to implement that stance across bank reserves and overnight funding markets.The Federal Open Market Committee's October decision passed 10-2, with Lisa D. Cook and Beth M. Hammack dissenting and preferring a quarter-percentage-point increase.The Oct. 29 accompanying implementation note maintains interest on reserve balances (IORB) at 3.9%, with standing overnight repo at 4% and reverse repo offered at 3.75%.The 3.75%-4% range is the FOMC's policy target for the federal funds market, where banks and other eligible entities borrow and lend balances held at the Fed overnight without collateral.As the New York Fed explains, administered rates help keep that market rate within the target range. An instruction to maintain the range differs from a report of where transactions cleared.How the Federal Reserve implements its 3.75 to 4 percent target rangeA mechanism map showing standing repo at 4 percent, IORB at 3.9 percent and overnight reverse repo at 3.75 percent around the federal funds market, with conditional reserve-management purchases shown ...