Fed’s Williams: Central bank will adjust response to money market volatility ‘as appropriate’
New York Federal Reserve President John Williams said Thursday the central bank is learning as it works to increase liquidity in the banking system and that it will adjust its approach as needed.
One early lesson from the Fed’s daily interventions in money markets is that a standing repo facility, which would allow banks to convert Treasury holdings to cash, might not be enough on its own to make sure banks have the liquidity they need, Williams told reporters following an event organized by the Managed Funds Association
There are still a “number of steps needed” to spread reserves out more broadly throughout the banking system after a repo operation, he said.
“I don’t think that alone would address the problem,” Williams said. “Repo does add reserves but it’s not a perfect substitute for actually having a higher level of reserves permanent in the banking system.”