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Monthly Cash Review - April 2021

The Federal Reserve stuck to their dovish plan, making no changes to their policy rate or asset purchases. All the while, money markets began to buckle under the strain of all the cash in the system.


As was widely anticipated, the Federal Reserve (Fed) made no changes to their policy rate or asset purchases at the latest April meeting. The accompanying FOMC statement was also in line with expectations of more balanced risks, albeit with a slightly more positive tone regarding the economy. The Fed acknowledged the pickup in inflation we have seen in the past months, but continued to describe it as representing “transitory factors,” noting that sectors most affected by Covid-19 have “shown improvement.”

While the Fed stuck to their dovish plan, money markets started to buckle under the strain of all the cash in the system. Repo rates continued to trade from 0.00% to 0.01% and overnight deposits traded in the mid- to high-single digits. We also witnessed Fed Fund Effective (FFE) trade down to 0.05% on the last day of the month. A prolonged period of FFE trading at or through 0.05% should be a signal to the Fed that an adjustment to the RRP and IOER is needed.

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