Fed market gurus prep rate hike amid last-minute anxieties

By Jonathan Spicer NEW YORK (Reuters) – The New York Federal Reserve officials tasked with prying interest rates off the floor have been meeting with bankers and traders to plot how best to do it, amid deep uncertainty over how much control they will really have over short-term lending markets. With the U.S. central bank expected to raise rates later this year, Simon Potter and his team of market technicians have the tricky job of implementing higher rates using some new and lightly tested tools as well as some that may not work as well as in the past. The trouble is that the federal funds market, the intra-bank trading pool traditionally used by the Fed to meet its policy goals, has shrunk to about a quarter of its pre-crisis size after more than six years of unprecedented monetary stimulus. The Fed wants to avoid a scenario in which yields don’t rise enough after it lifts the fed funds rate because banks, flush with $2.5 trillion of reserves parked at the central bank, don’t need short-term funding.

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