You wouldn’t know the Federal Reserve has done nothing but add to its record monetary stimulus from looking at short-term funding markets.
The federal funds effective rate on overnight loans between banks was 0.16 percent on Nov. 21, up from 0.06 percent at the end of September 2011, the month Fed officials announced they would begin swapping short-term securities in their portfolio for long-term debt under Operation Twist. The rate for borrowing and lending Treasuries for one day through repurchase agreements also has surged.
Operation Twist, extended in June of this year, is scheduled for completion by year-end as the Fed holds less than $80 billion of debt maturing through 2015, almost all of which will be sold by then. A “number” of Fed officials said the central bank may need to expand its monthly purchases of bonds next year, according to the minutes of the Federal Open Market Committee’s Oct. 23-24 meeting.