The Federal Reserve’s interest rate setting committee usually meets about every six weeks. Its meeting in the week ahead will be its second in three weeks.
No, the Fed’s meeting calendar wasn’t mixed up. Instead, the central bankers met in what they called an “unscheduled” meeting on Oct. 4. Public word of the meeting wasn’t released until a week later.
That delayed statement is not how the Fed handles its regularly scheduled get-togethers. The normal course of business, like it will be on Wednesday, Oct. 30, is for the group to publicly release a statement and for Chairman Jerome Powell to hold a press conference the same day. The statement is a short description of the Fed’s latest thinking on the economy, and, most important for the investment markets, if it is changing its target short-term borrowing rate. The chairman then attempts to explain the group’s rationale.
The Fed is expected to cut that interest rate on Wednesday, according to the Fed Funds futures market tracked by the CME FedWatch tool. The central bank has pointed to a global economic slowdown and trade tensions for cutting its rate each of its two past regularly scheduled meetings.
If the Fed has been successful in communicating to the market its intent to drop borrowing costs, why the irregularly scheduled meeting earlier this month? Because of worries in the repo market.
Last month, the enormous repo (repurchase agreement) market started showing signs of stress. This market helps banks, funds and other big companies fund daily operations. Essentially, the firms borrow money for a day, using short-term government bonds as collateral. Borrowing rates spiked and the Fed stepped in to ensure cash kept flowing.
What the Fed decided early this month was to buy up to $60 billion a month of short-term government bonds through at least April. If that sounds like a familiar strategy, it is. The Fed bought billions of dollars of long-term government bonds and mortgage-backed bonds for several years after the Great Recession. It was part of the agency’s unprecedented actions to stave off a worse economic collapse.
Fed Chairman Powell has rejected the notion that its action earlier this month is similar to what it did to help nurse the economy back after the recession. He has the opportunity this week to ease fears about its motivations this time.
Tom Hudson hosts “The Sunshine Economy” on WLRN-FM, where he’s vice president of news. Twitter: @HudsonsView.