The Federal Reserve has calmed the overnight funding market and brought its fed funds rate back in line with its target.

But the question is how long will the Fed have to remain engaged, following the third day of special open market operations.

The short-term funding market came under pressure this week, with some repo rates spiking as high as 10% earlier Monday and Tuesday. The repurchase agreement, or repo, market is basically the plumbing of Wall Street, where banks in need of short-term cash come for funding.

In an unusual move, the Fed's benchmark fed funds rate rose to 2.3% Tuesday, above the target rate range, but as of Wednesday, it was back to 2.25%.

The rate was at the top of the range set by the Fed in July, though it has since been reduced with the Fed's Wednesday afternoon rate cut to 1.75% to 2%. When Thursday's rate is reported Friday, it should be within the new range.

"It seems like trading today is inside the target range. Tuesday may have been a massive blip. The question is now that the Fed's operations managed to calm conditions, are they able to exit?" said Hill.

The Fed on Thursday accepted $75 billion of $84 billion in bids submitted in its overnight repo operation, the same amount it accepted Wednesday. The weighted average for the overnight Treasury repo rate was 1.845% in the operation.That overnight rate had hit 9% earlier in the week.

"Quarter end is ticking closer by the day. The last one was pretty messy. People paid some attention to it, but not a lot. Now it's getting a lot of attention. To me that's the litmus test. If the market gets through quarter end, and it's not too rocky, then I think ... things are back to normal," said Michael Schumacher, director, rate strategy at Wells Fargo.

On Monday, it became apparent that there was a temporary cash crunch in the short term funding market.

Strategists say it may have been a perfect storm of events that caused the problem, with a hefty amount of funds required for Treasury settlements and tax payments by corporations and others. Rates spiked, as high as 10% for some transactions. Strategists said they do not believe it is a credit problem, but more of a cash shortage.

On Tuesday, the Fed ran a funding operation in the morning, shortly after it announced it. Jon Hill, BMO senior rate strategist said the fact the Fed preannounced Wednesday's operation on Tuesday afternoon helped soothe the market, and he described it now as calm.

The New York Fed, which conducts the operations, preannounced Thursdays' operation Wednesday afternoon.

Another rate the Fed watches, the secured overnight financing rate, or SOFR, was reported at 2.55% on Wednesday, after shooting up to 5.25% on Tuesday. SOFR affects floating rates on about $285 billion outstanding in corporate and other loans.

"It's still elevated versus other overnight rates. But this is elevated, it's not chaos," said Hill.

Schumacher said the Wednesday rate for SOFR does not yet include the Fed's rate cut, so it should fall further when Thursday's number is reported Friday.

"The Fed definitely did not completely squelch it," said. "Let's say it has a better grip on it. Calm and being back to normal are two different things."

Fed Chairman Jerome Powell Wednesday said the Fed would monitor the situation and make its repo facility available as needed. He said the Fed was aware there would be high demand for cash on Monday, but it did not anticipate the level of volatility that occurred.