Fed Prepares for Policy Change --- Latest Move Would Help Drain Cash; Not Tightening, Yet
The Federal Reserve continues to work on the plumbing that will eventually drain the flood of cash it has pumped into the financial system.</br></br>On Tuesday, the Federal Reserve Bank of New York announced it was further broadening the pool of those eligible to take part in reverse-repurchase agreements, expected to be a key tool the Fed will use to exit from the accommodative policy stance it has been in since the financial crisis hit in 2008.</br></br>The criteria set forth Tuesday would allow U.S. government-sponsored enterprises like Fannie Mae and Freddie Mac to apply to participate in reverse-repurchase agreements, in which the central bank sells securities from its portfolio to counterparties with an agreement to buy them back later.</br></br>Under the arrangement, the buyers essentially lend cash to the Fed, removing reserves from the system.</br></br>"They're sharpening their tools here. I don't think it means that they're going to [make any move to tighten policy] sooner," said Raymond Stone, economist at Stone & McCarthy Research Associates, an economic and bond-market research firm. "They just want to make sure when the time comes they have tools to do it."