Another concern is that the Fed's use of the repo market might crowd out General Electric (GE) and other large companies that rely on money market funds for borrowing. Big corporations might have to pay a higher interest rate for their short-term loans to compete with the Fed. That, of course, is the point. The Fed is trying to raise interest rates. But with the Fed borrowing so much, borrowing rates for big companies could shoot up more than expected. The result is a market that's jumping from one artificial correction to another.
"The Fed is jumping into the repo market to fix problems that were caused by quantitative easing. What you get is more and more markets where prices are not being set by investors but by the Fed. We are losing the market's normal price discovery system," says market strategist James Bianco. "Fed officials will say these concerns are misplaced, but they always say that."
Of course, the fact that the Fed put off tapering means that it will be longer until the Fed actually raises interest rates. So there is nothing to worry about, yet. But the longer Fed waits before calling off its stimulus efforts, the more likely it is that we will have to worry about it someday.