Fed’s Williams Says Bank Reserves Close to Key ‘Ample’ Level
Federal Reserve Bank of New York President John Williams said recent volatility in overnight funding markets is a sign the US central bank is close to reaching its desired level of bank reserves.
“Based on recent sustained repo market pressures and other growing signs of reserves moving from abundant to ample, I expect that it will not be long before we reach ample reserves,” Williams said Friday in remarks prepared for a conference in Frankfurt. Repo is a reference to the market for short-term repurchase agreements.
The New York Fed chief said he expects short-term liquidity facilities, such as the Standing Repo Facility, to continue to play a “critical role” for money markets, assuring the Federal Funds Rate stays within the target range set by policymakers. “I fully expect that the SRF will continue to be actively used in this way and contain upward pressures on money market rates,” he said.
The Fed announced last week it intends to stop shrinking its balance sheet starting Dec. 1.
As rates in money markets continue to surpass the range set for the federal funds rate on certain dates, some investors have questioned whether the central bank will need to restart purchases of Treasuries to bolster liquidity sooner than expected.
Williams said the decision to stop shrinking the balance sheet was based on “clear market-based signs” that bank reserves where at their desired level following a runoff of assets that began in 2022 and “has worked according to plan.”
Williams didn’t comment in his prepared remarks on the Fed’s decision last week to lower interest rates by a quarter percentage point.
Source : Bloomberg.com
