New York Fed’s Logan says staff will carefully monitor money markets

U.S. greenback banknotes are displayed on this illustration taken, February 14, 2022. REUTERS/Dado Ruvic/Illustration

March 2 (Reuters) – The Federal Reserve’s almost $9 trillion stability sheet has extra room to say no than it did the final time the central financial institution shrank its holdings and policymakers will nonetheless watch cash markets carefully, a senior financial institution official mentioned on Wednesday.

The Fed’s standing repo amenities must also function a backstop to maintain markets secure because the central financial institution shrinks its bond holdings, mentioned Lorie Logan, an govt vp with the New York Fed.

“Employees will fastidiously monitor developments in cash markets to know modifications in reserve situations,” Logan mentioned throughout a webinar organized by New York College.

Logan reiterated that policymakers wish to shrink holdings primarily by letting their securities mature.

Some officers have mentioned the Fed might have to contemplate promoting some if its mortgage-backed securities later to hurry up the transition to a portfolio made up largely of Treasury securities, however Logan mentioned these selections could be made later. learn extra

She additionally shared some estimates on what the stability sheet runoff might appear to be. As an example, principal funds from Treasury holdings might vary from $40 billion to $150 billion monthly, over the following few years, averaging round $80 billion.

The runoff for mortgage-backed securities might common about $25 billion monthly over the following few years, however the precise tempo is unsure and affected by mortgage charges, she mentioned.

The Fed’s stability sheet doubled after the central financial institution bought belongings to stabilize markets and assist the economic system through the pandemic. Logan, who heads the New York Fed’s market operations, mentioned that asset purchases to assist market functioning shall be uncommon sooner or later.

“I anticipate circumstances warranting sizable intervention to assist market functioning to be terribly uncommon,” she mentioned.

Reporting by Jonnelle Marte; Modifying by Sam Holmes

: The Thomson Reuters Trust Principles.