New York (AFP) - The New York Federal Reserve Bank on Tuesday stepped into financial markets for the first time in more than a decade to keep interest rates in line with the Fed's target.
Analysts say the operation appears to have been successful but it caused some jitters, coming as the Fed's policy-setting Federal Open Market Committee opens a two-day meeting expected to produce a second cut in the benchmark lending rate.
The New York Fed said the $75 billion in repurchase agreements -- known as "repos" -- were made "in order to help maintain the federal funds rate within the target range of 2 to 2-1/4 percent."
The New York Fed conducts regular operations to implement the FOMC's policy but the rate had moved to the top of the range, 2.25 percent, as demand for cash rose amid falling bank reserves.
Kathy Bostjancic, Oxford Economics' chief US financial economist, told AFP there was a "tsunami" of technical factors driving the demand for funds and pushing rates out of whack but the big injection helped.
It was the first such operation since September 2008.
"Any time the plumbing acts up it's a concern and it has a ripple effect throughout money markets," Bostjancic said, adding that reserves helped with the "dislocation in the repo market."
She explained that technical factors including September payments of corporate taxes, as well as a huge quantity of Treasury debt issuance created the drop in bank reserves.
US lawmakers' delay in raising the federal debt ceiling earlier this year caused a backlog in Treasury debt issues since the government was not able to raise more funds. Treasury has had to play catch up, she said.
"So there is a lot going on. It's technical and it all kind of came together at once," she said, adding that the New York Fed has been "behind the curve in trying to estimate how much reserves should be in the system."