Saturday, May 29, 2010

· Fed continues to put in place mechanisms that will help it tighten policy when the time
announces dates of its term deposit facilities - The fed will conduct three tests of the
term deposit facility - June 14, June 28, and Jul 12. These are basically CD-like facilities that
will be used to tighten credit when the Fed decides to move down this road. The Fed has said
it would be conducting these tests in the early summer and makes clear that the tests don’t
have implications for policy. However, the fact they are moving forward despite the recent
european debt crisis could be taken as a neg. by the market and cause some to think that EU
won't derail the Fed's tightening plan too much. Stocks ticked lower on the news and dollar
ticked higher.
· Fed’s Lacker says his support waning for “extended period” - “A couple weeks ago I was
still comfortable with that language. Decreasingly so,” he said. “That’s where I am now, just
sort of marginally comfortable with that language.” Bloomberg
· The Fed could consider cutting the rate it charges on US$ loans made through the ECB;
currently, this rate is 100bp ahead of OIS (Overnight Indexed Swaps, which tracks the
expected path of the Fed Funds); some think cutting the rate wouldn’t do much as its
currently not onerous; however, there has only been ~$9B drawn under the swaps since they
were re-opened a few weeks ago – WSJ

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