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Markets | Odd Lots
In-Depth Insights with Joe Abate on the Fed’s Revised Objectives and Increasing Cost of Capital
The dynamics of funding markets are shifting.
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Traditionally, discussions around the Federal Reserve have revolved around «benchmark interest rates.» However, the methods the central bank employs to adjust monetary policy are more complex than they appear. For several years, the Fed has managed this through the federal funds market, where U.S. banks engage in lending and borrowing of excess reserves. Recent statements from Dallas Fed President Lorie Logan suggest a potential shift in this approach, as she contends that the current fed funds target is becoming obsolete and that the Fed should explore alternative strategies. What might these alternatives entail, and why are the nuances of the short-term funding markets significant? We sat down with Joe Abate, head of macrostrategy at SMBC Nikko, to discuss these developments and the overall liquidity landscape.
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