Wall Street giants warn: Pressure in the money market may reignite, and the Fed may be forced to act.

On November 7, according to the Financial Times, several banks on Wall Street warned that pressures in the U.S. money market could flare up again, prompting the Fed to take more rapid action to curb a new round of rise in short-term interest rates. Short-term financing rates stabilized this week, but signs of strain that appeared in critical parts of the financial system last month have raised concerns among some bankers and policymakers. However, market participants remain worried about the risk of repo rates jumping again in the coming weeks. “I don't believe this is just an isolated abnormal fluctuation that lasts for a few days,” said Deirdre Dunn, head of interest rate business at Citibank on Wall Street, who also serves as chair of the Treasury Borrowing Advisory Committee. Scott Skyrm, executive vice president of repo market specialist Curvature Securities, added that although the market has “returned to normal,” partly due to banks utilizing the Fed's financing mechanisms to relieve pressures in the money market, “financing pressures are likely to return at least by the end of next month and at year-end.” Meghan Swiber, an interest rate strategist at Bank of America, stated, “The scale of such aggressive Treasury issuance is at a high level by historical standards and could potentially exhaust traditional investors' demand for Treasuries. To better balance the supply and demand for Treasuries, we believe that a long-dormant buyer is likely to need to get on board: that is the Fed.”