(Adds background on facility)
By Jonathan Spicer
NEW YORK, March 25 The U.S. Federal Reserve's
committee of policy-setters has not yet decided to fully embrace
a new test facility for so-called reverse repurchase agreements
as a tool for conducting monetary policy in the future,
Philadelphia Fed President Charles Plosser said on Tuesday.
Addressing the ongoing testing of the Fed's reverse repo
facility, Plosser stressed that the policy-setting Federal Open
Market Committee, and not the New York Fed's open markets desk,
will make the final decision on whether to formally adopt the
He said he worries that investors have already concluded
that the facility will be adopted and used as a prime tool for
guiding market-wide interest rates, adding that is "not
The New York branch of the central bank has been testing the
reverse repo facility since September as a way to help control
short-term interest rates, and has seen strong demand from money
market funds and other bidders.
In reverse repos, the Fed temporarily drains cash from the
financial system by borrowing funds overnight from banks, large
money market mutual funds and others, and offering them Treasury
securities as collateral. Banks and the funds are currently
receiving 5 basis points, or 0.05 percent, for the overnight
loan, up from 1 basis point in September.
The tool is designed to mop up excess cash in the financial
system, which if left unchecked could keep rates lower than
perhaps desired by the Fed at a later date. Some believe the
facility could become the Fed's primary tool for conducting
But asked about the ongoing testing, Plosser said he would
like to "slow it down" a little bit. The FOMC needs to carefully
think through the ramifications of formally adopting the
facility, he added.
(Reporting by Jonathan Spicer; Editing by Eric Walsh)