Market confidence in the Federal Reserve Bank of New York and its leader, John Williams, remains on shaky ground, after its initial response to the breakdown of a vital short-term lending market last week compounded simmering tensions.

The cost of borrowing cash overnight in exchange for US Treasuries in the repo market— crucial for banks and investors seeking to cover short-term funding needs — quadrupled to a high of 10 per cent on Tuesday, prompting the New York Fed to inject cash into the financial system to calm the turmoil.

Mr Williams and Lorie Logan, senior vice-president in the markets group, told the Financial Times that the decision to step in on Tuesday was planned and had the desired effect, with repo rates falling back down to more normal levels by the end of the week.