Williams says counterparties need repo rates materially above SRF rate before using the facility due to frictions.
“These frictions add to the costs that counterparties face when using the facility and mean that counterparties generally require private market repo rates to trade materially above the SRF minimum bid rate before using the facility.”
Williams notes the SRF was used at June quarter end and mid-September as reserve levels fall.
“But as reserve levels fall this is shifting somewhat, with the SRF used at the recent June quarter end and at the mid-September tax date.”
Williams notes actual tariffs in effect recently were much smaller than announced rates.
“But actual tariffs in effect in recent months were much smaller than that, as seen by the amount of tariff revenue collected each month.”
Williams explains ample reserves deliver adequate liquidity to maintain rate control and smooth functioning.
“In the Fed’s monetary policy implementation framework, an ample supply of U.S. dollar reserves delivers adequate liquidity to the banking system, helping to maintain rate control and smooth market functioning.”