THE FEDERAL RESERVE
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Logan: Inflation data a 'welcome relief,' still long way to go"
By Lindsay Dunsmuir
November 10, 2022
Nov 10 (Reuters) - A U.S. government report showing consumer prices increasing less than expected in October is "welcome relief," Dallas Federal Reserve President Lorie Logan said on Thursday, even as she cautioned that the U.S. central bank remains in a protracted battle against high inflation.
"This morning's CPI (Consumer Price Index) data were a welcome relief, but there is still a long way to go," Logan said in a speech to an economics conference focused on energy hosted by the Dallas Fed and Kansas City Fed in Houston, Texas.
"Inflation is much too high."
The Fed last week raised rates by 75 basis points for the fourth consecutive meeting, but several policymakers, including Fed Chair Jerome Powell, since then have signaled they hope to shift to smaller hikes in borrowing costs as soon as their next meeting in December to allow time for the economy to absorb the swiftest tightening of monetary policy in 40 years.
The closely watched inflation data, released earlier on Thursday, provides support for the central bank to dial back its hefty rate hikes, and Logan also backed such an approach.
"I believe it may soon be appropriate to slow the pace of rate increases so we can better assess how financial and economic conditions are evolving," Logan said, even as she warned markets not to confuse a slower pace of monetary policy tightening with easier policy.
Logan also made clear such a decision to slow the pace of rate hikes, for her, is not "particularly closely related to incoming data," instead preferring to look at the Fed's policy strategy as a whole in terms of the ultimate level for rates, the time spent there and factors determining further increases or decreases.
The Fed's rate-setting committee "should adjust other elements of policy to deliver appropriately tight conditions even as the pace slows."
"We must remain firmly committed to our 2% inflation goal," Logan said.
The Dallas Fed chief, appointed to the post in August, was previously the head of market operations for the New York Fed.
She used that expertise on Thursday to weigh in on how the financial system was faring as the central bank attempts to cool demand across the economy.
"So far, I believe we are seeing a normal financial market response to tighter monetary policy," Logan noted.
"While liquidity conditions in key financial markets have been strained, those strains appear so far to result primarily from high economic uncertainty and volatility that raises the costs of market-making, rather than the other way around."
Nevertheless, it is important to remain attentive to any unexpected responses to further policy tightening, Logan said.
Reporting by Lindsay Dunsmuir; Editing by Paul Simao
https://www.reuters.com/markets/us/feds ... 022-11-10/
"Fed's Logan: Inflation data a 'welcome relief,' still long way to go"
By Lindsay Dunsmuir
November 10, 2022
Nov 10 (Reuters) - A U.S. government report showing consumer prices increasing less than expected in October is "welcome relief," Dallas Federal Reserve President Lorie Logan said on Thursday, even as she cautioned that the U.S. central bank remains in a protracted battle against high inflation.
"This morning's CPI (Consumer Price Index) data were a welcome relief, but there is still a long way to go," Logan said in a speech to an economics conference focused on energy hosted by the Dallas Fed and Kansas City Fed in Houston, Texas.
"Inflation is much too high."
The Fed last week raised rates by 75 basis points for the fourth consecutive meeting, but several policymakers, including Fed Chair Jerome Powell, since then have signaled they hope to shift to smaller hikes in borrowing costs as soon as their next meeting in December to allow time for the economy to absorb the swiftest tightening of monetary policy in 40 years.
The closely watched inflation data, released earlier on Thursday, provides support for the central bank to dial back its hefty rate hikes, and Logan also backed such an approach.
"I believe it may soon be appropriate to slow the pace of rate increases so we can better assess how financial and economic conditions are evolving," Logan said, even as she warned markets not to confuse a slower pace of monetary policy tightening with easier policy.
Logan also made clear such a decision to slow the pace of rate hikes, for her, is not "particularly closely related to incoming data," instead preferring to look at the Fed's policy strategy as a whole in terms of the ultimate level for rates, the time spent there and factors determining further increases or decreases.
The Fed's rate-setting committee "should adjust other elements of policy to deliver appropriately tight conditions even as the pace slows."
"We must remain firmly committed to our 2% inflation goal," Logan said.
The Dallas Fed chief, appointed to the post in August, was previously the head of market operations for the New York Fed.
She used that expertise on Thursday to weigh in on how the financial system was faring as the central bank attempts to cool demand across the economy.
"So far, I believe we are seeing a normal financial market response to tighter monetary policy," Logan noted.
"While liquidity conditions in key financial markets have been strained, those strains appear so far to result primarily from high economic uncertainty and volatility that raises the costs of market-making, rather than the other way around."
Nevertheless, it is important to remain attentive to any unexpected responses to further policy tightening, Logan said.
Reporting by Lindsay Dunsmuir; Editing by Paul Simao
https://www.reuters.com/markets/us/feds ... 022-11-10/
Re: THE FEDERAL RESERVE
REUTERS
"Fed's George calls for 'more measured' pace of rate hikes"
By Ann Saphir
November 10, 2022
Nov 10 (Reuters) - Kansas City Federal Reserve President Esther George on Thursday reiterated her support for a slower pace of U.S. interest rate increases, calling for a "more measured" approach that allows the central bank time to judge how the rises in borrowing costs are affecting the economy.
"I continue to see several advantages for a steady and deliberate approach to raising the policy rate," George said in remarks prepared for delivery to an energy conference co-hosted by her regional bank and the Dallas Fed.
The Fed has lifted short-term borrowing costs at an extraordinarily fast pace this year, including four straight 75-basis-point hikes that have brought the central bank's benchmark overnight interest rate from near zero in March to the current 3.75%-4.00% range.
The goal has been to slow the economy and bring down inflation that's running far higher than the Fed's 2% goal.
George dissented in June when the Fed pushed through the first of its extra-large rate hikes, and though she has not done so since, she has repeatedly called for a slower, steadier pace of increases than what the central bank has delivered.
"Without question, monetary policy must respond decisively to high inflation to avoid embedding expectations of future inflation," she said on Thursday, noting that raising rates in large chunks can add to financial market stress.
"A more measured approached to rate increases may be particularly useful as policymakers judge the economy's response to higher rates," she said.
Her fellow Fed policymakers now appear to be on the verge of agreeing with her, with the statement released after last week's Fed decision promising that the pace of future rate hikes would take into account the delayed effect that higher borrowing costs have on the economy.
"As the tightening cycle continues, now is a particularly important time to avoid unduly contributing to financial market volatility, especially as volatility stresses market liquidity with the potential to complicate balance sheet run-off plans," George said.
She did not say how high she expects rates will need to go.
"The degree of tightening necessary will only be determined by observing the dynamics of the economy and inflation and cannot be predetermined by theory or pre-pandemic benchmarks," George said.
Reporting by Ann Saphir; Editing by Paul Simao
https://www.reuters.com/markets/rates-b ... 022-11-10/
"Fed's George calls for 'more measured' pace of rate hikes"
By Ann Saphir
November 10, 2022
Nov 10 (Reuters) - Kansas City Federal Reserve President Esther George on Thursday reiterated her support for a slower pace of U.S. interest rate increases, calling for a "more measured" approach that allows the central bank time to judge how the rises in borrowing costs are affecting the economy.
"I continue to see several advantages for a steady and deliberate approach to raising the policy rate," George said in remarks prepared for delivery to an energy conference co-hosted by her regional bank and the Dallas Fed.
The Fed has lifted short-term borrowing costs at an extraordinarily fast pace this year, including four straight 75-basis-point hikes that have brought the central bank's benchmark overnight interest rate from near zero in March to the current 3.75%-4.00% range.
The goal has been to slow the economy and bring down inflation that's running far higher than the Fed's 2% goal.
George dissented in June when the Fed pushed through the first of its extra-large rate hikes, and though she has not done so since, she has repeatedly called for a slower, steadier pace of increases than what the central bank has delivered.
"Without question, monetary policy must respond decisively to high inflation to avoid embedding expectations of future inflation," she said on Thursday, noting that raising rates in large chunks can add to financial market stress.
"A more measured approached to rate increases may be particularly useful as policymakers judge the economy's response to higher rates," she said.
Her fellow Fed policymakers now appear to be on the verge of agreeing with her, with the statement released after last week's Fed decision promising that the pace of future rate hikes would take into account the delayed effect that higher borrowing costs have on the economy.
"As the tightening cycle continues, now is a particularly important time to avoid unduly contributing to financial market volatility, especially as volatility stresses market liquidity with the potential to complicate balance sheet run-off plans," George said.
She did not say how high she expects rates will need to go.
"The degree of tightening necessary will only be determined by observing the dynamics of the economy and inflation and cannot be predetermined by theory or pre-pandemic benchmarks," George said.
Reporting by Ann Saphir; Editing by Paul Simao
https://www.reuters.com/markets/rates-b ... 022-11-10/
Re: THE FEDERAL RESERVE
REUTERS
"Fed may slow pace of rate hikes soon: Brainard"
By Howard Schneider and Ann Saphir
November 14, 2022
Nov 14 (Reuters) - The Federal Reserve will likely soon slow its interest rates hikes, Fed Vice Chair Lael Brainard signaled on Monday, as the U.S. central bank tries to figure out how high borrowing costs need to go and how long they should stay there to bring down inflation.
"I think it will probably be appropriate soon to move to a slower pace of increases, but I think what’s really important to emphasize is... we have additional work to do," Brainard said in an interview with Bloomberg in Washington.
"It's really going to be an exercise on watching the data carefully and trying to assess how much restraint there is and how much additional restraint is going to be necessary, and sustained for how long, and those are the kinds of judgments that lie ahead for us," she said.
Brainard is the second ranking Fed official in as many days, along with Governor Christopher Waller on Sunday, to indicate the Fed is ready to begin moving in smaller rate hike increments as soon as its December meeting, while still emphasizing what Brainard called the central bank's "resolve" to keep pushing rates higher as needed to battle a surge of inflation.
The Fed raised its policy rate early this month to a range of 3.75%-4%, its fourth straight 75-basis-point interest-rate hike, as it seeks to rein in demand for goods, services, and labor so as to reduce inflation that's running more than three times the Fed's 2% target.
Fed Chair Jerome Powell has signaled that the central bank's next move may be smaller to give the Fed more scope to judge how the rapid rate hikes it has approved so far this year are affecting the economy, an impact that may only be apparent over many months.
But he also signaled the policy rate may next year peak at a rate higher than the 4.6% level that most policymakers had expected in September.
Brainard's remarks underscored that view.
"It makes sense to move to a more deliberate and a more data dependent pace as we continue to make sure that there's restraint that will bring inflation down over time," she said.
The Fed is balancing what it sees as a need to curb household and business spending and credit to try to lower inflation against the risk that if it tightens financial conditions too fast or too much it could trigger a more dramatic economic slowdown than needed, or even push the United States into recession.
Data released last week showing a slowdown in overall inflation and particularly in goods prices was "reassuring," Brainard said, and so far many economic indicators have showed continued strength despite the Fed's aggressive rate increases, with hiring in particular still strong.
But Brainard, Waller and other officials agree they will need to see the pace of price changes continue to slow to become comfortable the Fed is getting control of the situation, noting that some key parts of the price index, such as rents, may not peak until "well into next year."
Yet there have been tremors, and perhaps most notably in potential layoffs in the tens of thousands coming at high-profile tech companies like Meta, Twitter and Amazon.
As the Fed's policy rate gets more restrictive, Brainard said, the balance of risks will become more "two-sided," meaning that higher interest rates could start slowing the labor market enough to begin to endanger the Fed's second mandate of maximum employment.
Currently the U.S. unemployment rate is at 3.7%, below the 4% level that most policymakers believe reflects a long-run sustainable rate.
Recent labor market data suggests "cooling," Brainard said, and lessening wage pressures.
"As we go forward...risks are going to be two sided if we get into more restrictive or further into restrictive territory," she said, "so we'll be balancing those considerations."
Reporting by Howard Schneider and Ann Saphir; Additional reporting by Lindsay Dunsmuir; Editing by Andrea Ricci
https://www.reuters.com/markets/us/feds ... 022-11-14/
"Fed may slow pace of rate hikes soon: Brainard"
By Howard Schneider and Ann Saphir
November 14, 2022
Nov 14 (Reuters) - The Federal Reserve will likely soon slow its interest rates hikes, Fed Vice Chair Lael Brainard signaled on Monday, as the U.S. central bank tries to figure out how high borrowing costs need to go and how long they should stay there to bring down inflation.
"I think it will probably be appropriate soon to move to a slower pace of increases, but I think what’s really important to emphasize is... we have additional work to do," Brainard said in an interview with Bloomberg in Washington.
"It's really going to be an exercise on watching the data carefully and trying to assess how much restraint there is and how much additional restraint is going to be necessary, and sustained for how long, and those are the kinds of judgments that lie ahead for us," she said.
Brainard is the second ranking Fed official in as many days, along with Governor Christopher Waller on Sunday, to indicate the Fed is ready to begin moving in smaller rate hike increments as soon as its December meeting, while still emphasizing what Brainard called the central bank's "resolve" to keep pushing rates higher as needed to battle a surge of inflation.
The Fed raised its policy rate early this month to a range of 3.75%-4%, its fourth straight 75-basis-point interest-rate hike, as it seeks to rein in demand for goods, services, and labor so as to reduce inflation that's running more than three times the Fed's 2% target.
Fed Chair Jerome Powell has signaled that the central bank's next move may be smaller to give the Fed more scope to judge how the rapid rate hikes it has approved so far this year are affecting the economy, an impact that may only be apparent over many months.
But he also signaled the policy rate may next year peak at a rate higher than the 4.6% level that most policymakers had expected in September.
Brainard's remarks underscored that view.
"It makes sense to move to a more deliberate and a more data dependent pace as we continue to make sure that there's restraint that will bring inflation down over time," she said.
The Fed is balancing what it sees as a need to curb household and business spending and credit to try to lower inflation against the risk that if it tightens financial conditions too fast or too much it could trigger a more dramatic economic slowdown than needed, or even push the United States into recession.
Data released last week showing a slowdown in overall inflation and particularly in goods prices was "reassuring," Brainard said, and so far many economic indicators have showed continued strength despite the Fed's aggressive rate increases, with hiring in particular still strong.
But Brainard, Waller and other officials agree they will need to see the pace of price changes continue to slow to become comfortable the Fed is getting control of the situation, noting that some key parts of the price index, such as rents, may not peak until "well into next year."
Yet there have been tremors, and perhaps most notably in potential layoffs in the tens of thousands coming at high-profile tech companies like Meta, Twitter and Amazon.
As the Fed's policy rate gets more restrictive, Brainard said, the balance of risks will become more "two-sided," meaning that higher interest rates could start slowing the labor market enough to begin to endanger the Fed's second mandate of maximum employment.
Currently the U.S. unemployment rate is at 3.7%, below the 4% level that most policymakers believe reflects a long-run sustainable rate.
Recent labor market data suggests "cooling," Brainard said, and lessening wage pressures.
"As we go forward...risks are going to be two sided if we get into more restrictive or further into restrictive territory," she said, "so we'll be balancing those considerations."
Reporting by Howard Schneider and Ann Saphir; Additional reporting by Lindsay Dunsmuir; Editing by Andrea Ricci
https://www.reuters.com/markets/us/feds ... 022-11-14/
Re: THE FEDERAL RESERVE
REUTERS
"Fed may cut size of rate increases, but is not 'softening' inflation fight, Waller says"
Reuters
November 13, 2022
WASHINGTON, Nov 13 (Reuters) - The U.S. Federal Reserve may consider slowing the pace of rate increases at its next meeting but that should not be seen as a "softening" in its commitment to lower inflation, Federal Reserve Gov. Christopher Waller said on Sunday.
Markets should now pay attention to the "endpoint" of rate increases, not the pace of each move, and that endpoint is likely still "a ways off," Waller said in response to a series of questions on monetary policy at an economic conference organized by UBS in Australia.
"It depends on inflation."
"We're at a point we can start thinking maybe of going to a slower pace," Waller said, but "we're not softening..."
"Quit paying attention to the pace and start paying attention to where the endpoint is going to be."
"Until we get inflation down, that endpoint is still a ways out there."
A report released last week showing slower than expected inflation in October was "good news," but was "just one data point" that would have to be followed with other similar readings to show convincingly that inflation is slowing, he said.
The 7.7% annualized increase in inflation recorded in October is still "enormous," Waller said, noting that even if the Fed scaled back from three quarter point increases to a half point increase at its next meeting, "you're still going up."
"We're going to need to see a continued run of this kind of behavior and inflation slowly starting to come down before we really start thinking about taking our foot off the brakes," Waller said, adding that he has been further convinced the Fed is on the right path because its rates increases so far have not "broken anything."
The Fed has raised rates a total of 3.75 percentage points this year beginning in March, including four three quarter point increases, a rapid shift in monetary policy aimed to cool the worst surge of inflation since the 1980s.
"For all the talk of crashing the economy and breaking the financial markets."
"It hasn't done that," Waller said.
Analysts and economists have warned that the monetary tightening will further the risk of recession, impacting employment.
U.S. Senate Banking Committee Chair Sherrod Brown last month urged the Federal Reserve to be careful about tightening monetary policy so much that millions of Americans already suffering from high inflation also lose their jobs.
Reporting by Howard Schneider; Editing by Aurora Ellis
https://www.reuters.com/markets/us/feds ... 022-11-13/
"Fed may cut size of rate increases, but is not 'softening' inflation fight, Waller says"
Reuters
November 13, 2022
WASHINGTON, Nov 13 (Reuters) - The U.S. Federal Reserve may consider slowing the pace of rate increases at its next meeting but that should not be seen as a "softening" in its commitment to lower inflation, Federal Reserve Gov. Christopher Waller said on Sunday.
Markets should now pay attention to the "endpoint" of rate increases, not the pace of each move, and that endpoint is likely still "a ways off," Waller said in response to a series of questions on monetary policy at an economic conference organized by UBS in Australia.
"It depends on inflation."
"We're at a point we can start thinking maybe of going to a slower pace," Waller said, but "we're not softening..."
"Quit paying attention to the pace and start paying attention to where the endpoint is going to be."
"Until we get inflation down, that endpoint is still a ways out there."
A report released last week showing slower than expected inflation in October was "good news," but was "just one data point" that would have to be followed with other similar readings to show convincingly that inflation is slowing, he said.
The 7.7% annualized increase in inflation recorded in October is still "enormous," Waller said, noting that even if the Fed scaled back from three quarter point increases to a half point increase at its next meeting, "you're still going up."
"We're going to need to see a continued run of this kind of behavior and inflation slowly starting to come down before we really start thinking about taking our foot off the brakes," Waller said, adding that he has been further convinced the Fed is on the right path because its rates increases so far have not "broken anything."
The Fed has raised rates a total of 3.75 percentage points this year beginning in March, including four three quarter point increases, a rapid shift in monetary policy aimed to cool the worst surge of inflation since the 1980s.
"For all the talk of crashing the economy and breaking the financial markets."
"It hasn't done that," Waller said.
Analysts and economists have warned that the monetary tightening will further the risk of recession, impacting employment.
U.S. Senate Banking Committee Chair Sherrod Brown last month urged the Federal Reserve to be careful about tightening monetary policy so much that millions of Americans already suffering from high inflation also lose their jobs.
Reporting by Howard Schneider; Editing by Aurora Ellis
https://www.reuters.com/markets/us/feds ... 022-11-13/
Re: THE FEDERAL RESERVE
CNBC
"Fed’s Daly sees rates rising at least another percentage point as ‘pausing is off the table’"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED WED, NOV 16 2022
KEY POINTS
* San Francisco Fed President Daly told CNBC that her most recent estimate puts the benchmark overnight lending rate around 5%.
* She sees a point where the Fed will be able to evaluate the impact of its hikes before moving higher, but that is not now.
* “Pausing is off the table right now. It’s not even part of the discussion,” Daly said.
San Francisco Federal Reserve President Mary Daly said Wednesday she expects the central bank to raise interest rates at least another percentage point, and possibly more, before it can pause to evaluate how the inflation fight is going.
Daly told CNBC in a live interview that her most recent estimate in the Fed’s summary of economic projections puts the benchmark overnight lending rate around 5%.
She added that the right range is probably from 4.75% to 5.25% from its current targeted range of 3.75%-4%.
“I still think of that as a reasonable landing place for us before we hold, and the holding part is really important,” she told Steve Liesman during the “Squawk on the Street” interview.
“It’s a raise-to-hold strategy.”
Thus far, the Federal Reserve has hiked the fed funds rate, which spills over into a slew of other consumer debt products, six times, including four consecutive 0.75 percentage point moves.
Looking ahead, market pricing is largely in line with what Daly suggested.
Traders see the central bank adding another 0.5 percentage point when it meets again in mid-December, then moving a bit higher before stopping around the 4.75%-5% range.
Daly said she sees a point where the Fed will be able to evaluate the impact of its hikes before moving higher, but that is not now.
“Pausing is off the table right now."
"It’s not even part of the discussion,” she said.
“Right now, the discussion is rightly around slowing the pace and ... focusing our attention really on what is the level of interest rates that will end up being sufficiently restrictive.”
The Fed is using its primary tool of interest rate increases to fight inflation that still is around its highest level in more than 40 years.
Over the past week, the news has gotten at least incrementally better: The consumer price index rose a less-than-expected 0.4% in October, while the producer price index increased just 0.2%.
Both price measures are off their highs, running at respective annual rates of 7.7% and 8%, but still well above the Fed’s 2% target.
Daly said she saw an easing of core goods inflation as “positive news” and is encouraged by the general slowing in the economy.
“Consumers are stepping back, they’re changing how they allocate spending."
"They’re dealing with high inflation, of course."
"They have to make trade-offs, put things back that they would otherwise get."
"But they’re also preparing for a slower economy,” she said.
“That’s a very good start.”
Yet data Wednesday showed that spending is keeping up with inflation, as retail sales rose a slightly better-than-expected 1.3% in October.
Early data is showing GDP is accelerating at a 4% pace in the fourth quarter, according to the Atlanta Fed.
Daly said she expects higher rates to continue to have an impact on the economy and bring inflation back in line.
“When we raise it and hold, over time as we’re holding monetary policy is becoming tighter as inflation comes down, so that’s another factor we’ll have to consider,” she said.
Daly added that her goal is to bring inflation down “as efficiently and as gently as we can.”
https://www.cnbc.com/2022/11/16/feds-da ... table.html
"Fed’s Daly sees rates rising at least another percentage point as ‘pausing is off the table’"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED WED, NOV 16 2022
KEY POINTS
* San Francisco Fed President Daly told CNBC that her most recent estimate puts the benchmark overnight lending rate around 5%.
* She sees a point where the Fed will be able to evaluate the impact of its hikes before moving higher, but that is not now.
* “Pausing is off the table right now. It’s not even part of the discussion,” Daly said.
San Francisco Federal Reserve President Mary Daly said Wednesday she expects the central bank to raise interest rates at least another percentage point, and possibly more, before it can pause to evaluate how the inflation fight is going.
Daly told CNBC in a live interview that her most recent estimate in the Fed’s summary of economic projections puts the benchmark overnight lending rate around 5%.
She added that the right range is probably from 4.75% to 5.25% from its current targeted range of 3.75%-4%.
“I still think of that as a reasonable landing place for us before we hold, and the holding part is really important,” she told Steve Liesman during the “Squawk on the Street” interview.
“It’s a raise-to-hold strategy.”
Thus far, the Federal Reserve has hiked the fed funds rate, which spills over into a slew of other consumer debt products, six times, including four consecutive 0.75 percentage point moves.
Looking ahead, market pricing is largely in line with what Daly suggested.
Traders see the central bank adding another 0.5 percentage point when it meets again in mid-December, then moving a bit higher before stopping around the 4.75%-5% range.
Daly said she sees a point where the Fed will be able to evaluate the impact of its hikes before moving higher, but that is not now.
“Pausing is off the table right now."
"It’s not even part of the discussion,” she said.
“Right now, the discussion is rightly around slowing the pace and ... focusing our attention really on what is the level of interest rates that will end up being sufficiently restrictive.”
The Fed is using its primary tool of interest rate increases to fight inflation that still is around its highest level in more than 40 years.
Over the past week, the news has gotten at least incrementally better: The consumer price index rose a less-than-expected 0.4% in October, while the producer price index increased just 0.2%.
Both price measures are off their highs, running at respective annual rates of 7.7% and 8%, but still well above the Fed’s 2% target.
Daly said she saw an easing of core goods inflation as “positive news” and is encouraged by the general slowing in the economy.
“Consumers are stepping back, they’re changing how they allocate spending."
"They’re dealing with high inflation, of course."
"They have to make trade-offs, put things back that they would otherwise get."
"But they’re also preparing for a slower economy,” she said.
“That’s a very good start.”
Yet data Wednesday showed that spending is keeping up with inflation, as retail sales rose a slightly better-than-expected 1.3% in October.
Early data is showing GDP is accelerating at a 4% pace in the fourth quarter, according to the Atlanta Fed.
Daly said she expects higher rates to continue to have an impact on the economy and bring inflation back in line.
“When we raise it and hold, over time as we’re holding monetary policy is becoming tighter as inflation comes down, so that’s another factor we’ll have to consider,” she said.
Daly added that her goal is to bring inflation down “as efficiently and as gently as we can.”
https://www.cnbc.com/2022/11/16/feds-da ... table.html
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Waller says 'more comfortable' with smaller hikes after recent data"
By Howard Schneider and Ann Saphir
November 16, 2022
WASHINGTON, Nov 16 (Reuters) - U.S. Federal Reserve Governor Christopher Waller, an early and outspoken "hawk" in the central bank's efforts to confront inflation, said Wednesday he is now "more comfortable" with smaller rate increases going forward, though how high rates ultimately need to go depends on how decisively inflation slows.
In remarks prepared for delivery at an Arizona State University economic conference, Waller said he will not make a final decision about what to do at the Fed's Dec. 13-14 policy meeting until the rest of the data between now and then is reviewed, and remains skeptical that inflation has now decisively turned the corner.
"I will not be head-faked by one report," Waller said of consumer price data released last week that saw larger than expected declines in both headline inflation and a narrower but more closely watched index of "core" prices.
"We've seen this movie before."
He said the push for price stability at the Fed was "still a one-sided campaign," with rates moving higher and no current trade-off with jobs - the Fed's other goal - that needs to be balanced against the inflation battle.
With job growth still strong and unemployment at a low 3.7%, "we are not seeing the typical trade off that you think a central bank has to make between driving down inflation and causing all these kinds of job losses," Waller said.
"Go after inflation."
"The job market is giving this to you."
"So go after it," he said.
But he also acknowledged the most recent reports were a "positive development" that he hoped would be "the beginning of a meaningful and persistent decline in inflation" back to the Fed's 2% target.
After raising rates in atypically large three-quarter point increments at its last four meetings, Waller said that as it stands "the data of the past few weeks have made me more comfortable considering stepping down to a 50-basis-point hike," in December and possibly to smaller quarter-point increases after that.
The Fed's latest policy statement flagged a likely step down in the size of upcoming rate hikes, with officials shifting focus to a more nuanced approach that gives them more time to monitor how the economy and inflation are behaving while leaving themselves free to keep pushing rates higher.
Recent positive news on inflation has led investors to bet the Fed may not have to do as much as expected, and may only need to raise the target policy rate to around 5%.
It is currently set in a range of between 3.75% and 4%.
Waller said signs the economy and wage growth are slowing have added to his sense that Fed policy is beginning to do its job.
But he cautioned it was too early to pin down just how high rates may need to go.
"One report does not make a trend."
"It is way too early to conclude that inflation is headed sustainably down," he said.
"Getting inflation to fall meaningfully and persistently toward our 2% target will require increases in the federal funds rate into next year."
"We still have a ways to go."
Reporting by Howard Schneider and Ann Saphir; Editing by Andrea Ricci and Deepa Babington
https://www.reuters.com/markets/rates-b ... 022-11-16/
"Fed's Waller says 'more comfortable' with smaller hikes after recent data"
By Howard Schneider and Ann Saphir
November 16, 2022
WASHINGTON, Nov 16 (Reuters) - U.S. Federal Reserve Governor Christopher Waller, an early and outspoken "hawk" in the central bank's efforts to confront inflation, said Wednesday he is now "more comfortable" with smaller rate increases going forward, though how high rates ultimately need to go depends on how decisively inflation slows.
In remarks prepared for delivery at an Arizona State University economic conference, Waller said he will not make a final decision about what to do at the Fed's Dec. 13-14 policy meeting until the rest of the data between now and then is reviewed, and remains skeptical that inflation has now decisively turned the corner.
"I will not be head-faked by one report," Waller said of consumer price data released last week that saw larger than expected declines in both headline inflation and a narrower but more closely watched index of "core" prices.
"We've seen this movie before."
He said the push for price stability at the Fed was "still a one-sided campaign," with rates moving higher and no current trade-off with jobs - the Fed's other goal - that needs to be balanced against the inflation battle.
With job growth still strong and unemployment at a low 3.7%, "we are not seeing the typical trade off that you think a central bank has to make between driving down inflation and causing all these kinds of job losses," Waller said.
"Go after inflation."
"The job market is giving this to you."
"So go after it," he said.
But he also acknowledged the most recent reports were a "positive development" that he hoped would be "the beginning of a meaningful and persistent decline in inflation" back to the Fed's 2% target.
After raising rates in atypically large three-quarter point increments at its last four meetings, Waller said that as it stands "the data of the past few weeks have made me more comfortable considering stepping down to a 50-basis-point hike," in December and possibly to smaller quarter-point increases after that.
The Fed's latest policy statement flagged a likely step down in the size of upcoming rate hikes, with officials shifting focus to a more nuanced approach that gives them more time to monitor how the economy and inflation are behaving while leaving themselves free to keep pushing rates higher.
Recent positive news on inflation has led investors to bet the Fed may not have to do as much as expected, and may only need to raise the target policy rate to around 5%.
It is currently set in a range of between 3.75% and 4%.
Waller said signs the economy and wage growth are slowing have added to his sense that Fed policy is beginning to do its job.
But he cautioned it was too early to pin down just how high rates may need to go.
"One report does not make a trend."
"It is way too early to conclude that inflation is headed sustainably down," he said.
"Getting inflation to fall meaningfully and persistently toward our 2% target will require increases in the federal funds rate into next year."
"We still have a ways to go."
Reporting by Howard Schneider and Ann Saphir; Editing by Andrea Ricci and Deepa Babington
https://www.reuters.com/markets/rates-b ... 022-11-16/
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Williams says monetary policy not best tool for financial stability"
By Michael S. Derby
November 16, 2022
NEW YORK, Nov 16 (Reuters) - New York Federal Reserve President John Williams said on Wednesday he still believes monetary policy is not the best tool to address financial stability risks, and that policymakers instead should take action to boost the resilience of things like the U.S. Treasury market.
"For monetary policy to be most effective, financial markets must function properly," Williams said in remarks given before a Treasury market conference at the New York Fed.
"Using monetary policy to mitigate financial stability vulnerabilities can lead to unfavorable outcomes for the economy," Williams said, adding that "monetary policy should not try to be a jack of all trades and a master of none."
Williams did not comment on the near-term monetary policy outlook in his prepared remarks.
The New York Fed chief is also vice chair of the rate-setting Federal Open Market Committee.
But Williams did say that amid the current chapter of high inflation, the world's central banks have been taking "strong action" to bring price pressures down.
"Restoring price stability is of paramount importance because it is the foundation of sustained economic and financial stability."
"Price stability is not an either/or, it's a must-have," he said.
The central banker said the Fed and markets need to work together for solutions to improve market resilience.
In separate remarks, Nellie Liang, who is the Treasury Department's undersecretary for domestic finance, said the government's finance arm is looking to bring more transparency to the bond market.
Treasury securities have suffered from poor liquidity as the Fed has aggressively raised rates to lower high levels of inflation.
Despite the challenging trading conditions, there remains a sense that the market remains functional.
In a bid to increase market visibility, the Treasury is proposing to make public transaction data for on-the-run Treasury securities, "with end-of-day dissemination and with appropriate cap sizes."
Liang also said a possible plan for the government to buy back older bonds is on the backburner for now.
"We have not made any decision on whether or how to implement a buyback program but expect to share our findings on buybacks as part of future refundings," she said.
Reporting by Michael S. Derby; Editing by Paul Simao and Andrea Ricci
https://www.reuters.com/markets/us/feds ... 022-11-16/
"Fed's Williams says monetary policy not best tool for financial stability"
By Michael S. Derby
November 16, 2022
NEW YORK, Nov 16 (Reuters) - New York Federal Reserve President John Williams said on Wednesday he still believes monetary policy is not the best tool to address financial stability risks, and that policymakers instead should take action to boost the resilience of things like the U.S. Treasury market.
"For monetary policy to be most effective, financial markets must function properly," Williams said in remarks given before a Treasury market conference at the New York Fed.
"Using monetary policy to mitigate financial stability vulnerabilities can lead to unfavorable outcomes for the economy," Williams said, adding that "monetary policy should not try to be a jack of all trades and a master of none."
Williams did not comment on the near-term monetary policy outlook in his prepared remarks.
The New York Fed chief is also vice chair of the rate-setting Federal Open Market Committee.
But Williams did say that amid the current chapter of high inflation, the world's central banks have been taking "strong action" to bring price pressures down.
"Restoring price stability is of paramount importance because it is the foundation of sustained economic and financial stability."
"Price stability is not an either/or, it's a must-have," he said.
The central banker said the Fed and markets need to work together for solutions to improve market resilience.
In separate remarks, Nellie Liang, who is the Treasury Department's undersecretary for domestic finance, said the government's finance arm is looking to bring more transparency to the bond market.
Treasury securities have suffered from poor liquidity as the Fed has aggressively raised rates to lower high levels of inflation.
Despite the challenging trading conditions, there remains a sense that the market remains functional.
In a bid to increase market visibility, the Treasury is proposing to make public transaction data for on-the-run Treasury securities, "with end-of-day dissemination and with appropriate cap sizes."
Liang also said a possible plan for the government to buy back older bonds is on the backburner for now.
"We have not made any decision on whether or how to implement a buyback program but expect to share our findings on buybacks as part of future refundings," she said.
Reporting by Michael S. Derby; Editing by Paul Simao and Andrea Ricci
https://www.reuters.com/markets/us/feds ... 022-11-16/
Re: THE FEDERAL RESERVE
CNBC
"Fed’s Bullard says rate hikes have had ‘only limited effects’ on inflation so far"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED THU, NOV 17 2022
KEY POINTS
* St. Louis Fed President James Bullard noted that “the policy rate is not yet in a zone that may be considered sufficiently restrictive.”
* Using the so-called Taylor Rule for monetary policy, Bullard suggested the proper zone for the fed funds rate could be in the 5%-7% range, higher than current market pricing and unofficial Fed forecasts indicate.
St. Louis Federal Reserve President James Bullard said Thursday the central bank still has a lot of work to do before it brings inflation under control.
A voting member on the rate-setting Federal Open Market Committee, Bullard delivered remarks centered on a rules-based approach to policymaking.
Using standards set by Stanford economics professor John Taylor, Bullard insisted that the moves the Fed has made so far are insufficient.
“Thus far, the change in the monetary policy stance appears to have had only limited effects on observed inflation, but market pricing suggests disinflation is expected in 2023,” he said.
Even using assumptions he characterized as “generous” regarding the progress the Fed has made so far in its inflation fight, he noted in a series of slides that “the policy rate is not yet in a zone that may be considered sufficiently restrictive.”
“To attain a sufficiently restrictive level, the policy rate will need to be increased further,” he added in the presentation.
Recent data has indicated the pace of inflation could be slowing.
The consumer price index for October increased 0.4%, below market expectations, and the annual pace is down to 7.7%, off the 41-year high reached in the summer but still well above the Fed’s 2% target.
Another measure Fed officials prefer has core inflation, excluding food and energy, at 5.1% annually, but that is still out of line with the goal.
There’s little if any dissent on the Fed over whether rates need to continue to rise.
Most members have suggested a few more increases over the next several months that will take the central bank’s benchmark overnight borrowing rate to around 5% from its current target range of 3.75%-4%.
However, Bullard’s presentation contended that 5% could serve as the low range for the where the funds rate needs to be, and that upper bound could be closer to 7%.
That is well out of sync with current market pricing, which also sees the fed funds rate topping out around 5% by mid-2023.
The Taylor Rule, as it is known, establishes a link between what the funds rate needs to be compared with inflation and economic growth.
Inflation growth has abated recently, but the annual rate remains around the highest in more than 40 years.
Bullard’s remarks follow statements from multiple other Fed officials expressing the need to keep up the heat against inflation, though several said policymakers could ease up a bit from the level of recent increases.
The Fed has approved four consecutive 0.75 percentage point rate hikes, and markets widely expect the December FOMC meeting to yield a 0.5 percentage point move.
Despite backing the continued rate increases, Kansas City Fed President Esther George told The Wall Street Journal, in a report dated Wednesday, that she is concerned over the impact the policy tightening could have on the economy.
“I have not in my 40 years with the Fed seen a time of this kind of tightening that you didn’t get some painful outcomes,” George told the Journal, listing a “contraction” as part of the potential results.
George also is a voter on the FOMC.
In other recent remarks, Fed Governor Christopher Waller said Wednesday he’s open to the idea of “stepping down” the level of rate hikes but added he will need to see more evidence before he is persuaded by recent data suggesting inflation has plateaued.
Also, San Francisco Fed President Mary Daly told CNBC on Wednesday that she expects more rate rises and that a “pause is off the table” even with a lower level of rate increases.
Another slew of Fed speakers is on tap for Thursday, including several regional presidents and Governor Michelle Bowman.
https://www.cnbc.com/2022/11/17/feds-bu ... o-far.html
"Fed’s Bullard says rate hikes have had ‘only limited effects’ on inflation so far"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED THU, NOV 17 2022
KEY POINTS
* St. Louis Fed President James Bullard noted that “the policy rate is not yet in a zone that may be considered sufficiently restrictive.”
* Using the so-called Taylor Rule for monetary policy, Bullard suggested the proper zone for the fed funds rate could be in the 5%-7% range, higher than current market pricing and unofficial Fed forecasts indicate.
St. Louis Federal Reserve President James Bullard said Thursday the central bank still has a lot of work to do before it brings inflation under control.
A voting member on the rate-setting Federal Open Market Committee, Bullard delivered remarks centered on a rules-based approach to policymaking.
Using standards set by Stanford economics professor John Taylor, Bullard insisted that the moves the Fed has made so far are insufficient.
“Thus far, the change in the monetary policy stance appears to have had only limited effects on observed inflation, but market pricing suggests disinflation is expected in 2023,” he said.
Even using assumptions he characterized as “generous” regarding the progress the Fed has made so far in its inflation fight, he noted in a series of slides that “the policy rate is not yet in a zone that may be considered sufficiently restrictive.”
“To attain a sufficiently restrictive level, the policy rate will need to be increased further,” he added in the presentation.
Recent data has indicated the pace of inflation could be slowing.
The consumer price index for October increased 0.4%, below market expectations, and the annual pace is down to 7.7%, off the 41-year high reached in the summer but still well above the Fed’s 2% target.
Another measure Fed officials prefer has core inflation, excluding food and energy, at 5.1% annually, but that is still out of line with the goal.
There’s little if any dissent on the Fed over whether rates need to continue to rise.
Most members have suggested a few more increases over the next several months that will take the central bank’s benchmark overnight borrowing rate to around 5% from its current target range of 3.75%-4%.
However, Bullard’s presentation contended that 5% could serve as the low range for the where the funds rate needs to be, and that upper bound could be closer to 7%.
That is well out of sync with current market pricing, which also sees the fed funds rate topping out around 5% by mid-2023.
The Taylor Rule, as it is known, establishes a link between what the funds rate needs to be compared with inflation and economic growth.
Inflation growth has abated recently, but the annual rate remains around the highest in more than 40 years.
Bullard’s remarks follow statements from multiple other Fed officials expressing the need to keep up the heat against inflation, though several said policymakers could ease up a bit from the level of recent increases.
The Fed has approved four consecutive 0.75 percentage point rate hikes, and markets widely expect the December FOMC meeting to yield a 0.5 percentage point move.
Despite backing the continued rate increases, Kansas City Fed President Esther George told The Wall Street Journal, in a report dated Wednesday, that she is concerned over the impact the policy tightening could have on the economy.
“I have not in my 40 years with the Fed seen a time of this kind of tightening that you didn’t get some painful outcomes,” George told the Journal, listing a “contraction” as part of the potential results.
George also is a voter on the FOMC.
In other recent remarks, Fed Governor Christopher Waller said Wednesday he’s open to the idea of “stepping down” the level of rate hikes but added he will need to see more evidence before he is persuaded by recent data suggesting inflation has plateaued.
Also, San Francisco Fed President Mary Daly told CNBC on Wednesday that she expects more rate rises and that a “pause is off the table” even with a lower level of rate increases.
Another slew of Fed speakers is on tap for Thursday, including several regional presidents and Governor Michelle Bowman.
https://www.cnbc.com/2022/11/17/feds-bu ... o-far.html
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Kashkari: not stopping rate hikes until inflation peaks"
Reuters
November 17, 2022
Nov 17 (Reuters) - It's hard to know how high the U.S. central bank will need to raise interest rates, Minneapolis Federal Reserve Bank President Neel Kashkari said on Thursday, but it should not stop until it's clear that inflation has peaked.
"I need to be convinced that inflation has at least stopped climbing, that we're not falling further behind the curve, before I would advocate stopping the progression of future rate hikes," he told the Minnesota Chamber of Commerce in an event webcast by the regional Fed bank.
"We're not there yet."
Recent data showing consumer and wholesale prices cooled in October provide "some evidence that inflation is at least plateauing," he said, but "we cannot be overly persuaded by one month's data."
The Fed has raised rates aggressively this year, and Kashkari reminded his audience Thursday that the full effects of those rate hikes could take a year before they are felt economy-wide.
But inflation is running at more than three times the Fed's 2% target, and Fed policymakers are committed to restraining demand through higher borrowing costs to bring demand into better alignment with the available supply of labor, goods and services.
"It's an open question of how far we are going to have to go with interest rates to bring that demand down in the balance," he said.
Reporting by Ann Saphir; Editing by Mark Porter and Andrea Ricci
https://www.reuters.com/markets/rates-b ... 022-11-17/
"Fed's Kashkari: not stopping rate hikes until inflation peaks"
Reuters
November 17, 2022
Nov 17 (Reuters) - It's hard to know how high the U.S. central bank will need to raise interest rates, Minneapolis Federal Reserve Bank President Neel Kashkari said on Thursday, but it should not stop until it's clear that inflation has peaked.
"I need to be convinced that inflation has at least stopped climbing, that we're not falling further behind the curve, before I would advocate stopping the progression of future rate hikes," he told the Minnesota Chamber of Commerce in an event webcast by the regional Fed bank.
"We're not there yet."
Recent data showing consumer and wholesale prices cooled in October provide "some evidence that inflation is at least plateauing," he said, but "we cannot be overly persuaded by one month's data."
The Fed has raised rates aggressively this year, and Kashkari reminded his audience Thursday that the full effects of those rate hikes could take a year before they are felt economy-wide.
But inflation is running at more than three times the Fed's 2% target, and Fed policymakers are committed to restraining demand through higher borrowing costs to bring demand into better alignment with the available supply of labor, goods and services.
"It's an open question of how far we are going to have to go with interest rates to bring that demand down in the balance," he said.
Reporting by Ann Saphir; Editing by Mark Porter and Andrea Ricci
https://www.reuters.com/markets/rates-b ... 022-11-17/
Re: THE FEDERAL RESERVE
REUTERS
"NY Fed: Bank liquidity may be tighter than thought, with policy implications"
By Michael S. Derby
November 18, 2022
Nov 18 (Reuters) - The way the banking system manages its cash suggests the financial system may not be as flush as many now understand, and that could have implications for how the Federal Reserve manages the size of its balance sheet, a paper from the Federal Reserve Bank of New York said Friday.
That's because even though institutions like the Fed have flooded the banking system with reserves, many banks continue to manage fast-moving inflows and outflows of cash much like they always have, and that is tightly, the paper said.
The authors argue this way of managing cash positions could become an issue for the Fed as it seeks to draw down the size of its holdings of bonds, which reduces the level of bank reserves in the system.
Banks view their daily reserve balance levels as "scarce resource," the paper's authors said, adding "even in the era of large central bank balance sheets, rather than funding payments with abundant reserve balances, we show that outgoing payments remain highly sensitive to incoming payments."
"There is still a potential for strategic cash hoarding when reserve balances get sufficiently low," the researchers wrote.
"As central banks around the world respond to inflation by tightening their monetary stance and shrinking their balance sheets, the potential consequences for the wholesale payment system of the ongoing draining by central banks of reserves will likely be an important input into policy making," the paper said.
The paper, by economists at the New York Fed, the Bank for International Settlements and Stanford University, comes as the Fed has been cutting the size of its massive balance sheet as part of its broader effort to tighten monetary policy to lower the highest levels of inflation seen in 40 years.
The main part of that effort rests on rate hikes.
But the contraction of its balance sheet, which peaked at $9 trillion versus $4.2 trillion in March 2020 when the coronavirus pandemic struck, is also key to that campaign.
Fed holdings now stand at $8.6 trillion.
Fed officials have been confident that the effort of shedding $95 billion per month in Treasury and mortgage bonds per month, known as quantitative tightening, should run smoothly in large part because banks still have far more cash than they need.
Some point to more than $2 trillion per day financial firms park at the Fed via reverse repurchase agreements as evidence of this excess cash, which the Fed should be able to painlessly withdraw.
Meanwhile, bank reserves are at $3.18 trillion, down about $1 trillion from a year ago.
RATE CONTROL REGIME
Reserve levels affect the Fed's ability to conduct monetary policy.
When reserves are in short supply competition for them can introduce high levels of volatility in market-based short-term rates, and push them far from levels targeted by the central bank.
A shortage of reserves in September 2019 caused the Fed to intervene by borrowing and purchasing Treasury securities to add reserves back to the system to ensure its federal funds rate target stayed at desired levels, effectively ending its first effort at quantitative tightening.
The Fed has expressed confidence it can draw down reserves in a way that will not affect its interest rate target.
The paper suggests the way banks are managing liquidity, even in a time of ample liquidity, could challenge that view.
And while the paper doesn't say what it means for balance sheet policy, already some private sector forecasters are speculating the Fed may be forced to slow or halt its balance sheet contraction next year on a sooner-than-expected tightness of bank reserve levels.
One reason to expect the Fed to more easily manage any sort of intermittent reserve shortage is the existence of its so-called Standing Repo Facility, which allows eligible banks to quickly convert Treasuries into short-term cash loans.
Some want that tool expanded, arguing it would reduce the chance the Fed would need to intervene in the event of any sort of market turbulence.
Reporting by Michael S. Derby; Editing by Dan Burns
https://www.reuters.com/markets/us/ny-f ... 022-11-18/
"NY Fed: Bank liquidity may be tighter than thought, with policy implications"
By Michael S. Derby
November 18, 2022
Nov 18 (Reuters) - The way the banking system manages its cash suggests the financial system may not be as flush as many now understand, and that could have implications for how the Federal Reserve manages the size of its balance sheet, a paper from the Federal Reserve Bank of New York said Friday.
That's because even though institutions like the Fed have flooded the banking system with reserves, many banks continue to manage fast-moving inflows and outflows of cash much like they always have, and that is tightly, the paper said.
The authors argue this way of managing cash positions could become an issue for the Fed as it seeks to draw down the size of its holdings of bonds, which reduces the level of bank reserves in the system.
Banks view their daily reserve balance levels as "scarce resource," the paper's authors said, adding "even in the era of large central bank balance sheets, rather than funding payments with abundant reserve balances, we show that outgoing payments remain highly sensitive to incoming payments."
"There is still a potential for strategic cash hoarding when reserve balances get sufficiently low," the researchers wrote.
"As central banks around the world respond to inflation by tightening their monetary stance and shrinking their balance sheets, the potential consequences for the wholesale payment system of the ongoing draining by central banks of reserves will likely be an important input into policy making," the paper said.
The paper, by economists at the New York Fed, the Bank for International Settlements and Stanford University, comes as the Fed has been cutting the size of its massive balance sheet as part of its broader effort to tighten monetary policy to lower the highest levels of inflation seen in 40 years.
The main part of that effort rests on rate hikes.
But the contraction of its balance sheet, which peaked at $9 trillion versus $4.2 trillion in March 2020 when the coronavirus pandemic struck, is also key to that campaign.
Fed holdings now stand at $8.6 trillion.
Fed officials have been confident that the effort of shedding $95 billion per month in Treasury and mortgage bonds per month, known as quantitative tightening, should run smoothly in large part because banks still have far more cash than they need.
Some point to more than $2 trillion per day financial firms park at the Fed via reverse repurchase agreements as evidence of this excess cash, which the Fed should be able to painlessly withdraw.
Meanwhile, bank reserves are at $3.18 trillion, down about $1 trillion from a year ago.
RATE CONTROL REGIME
Reserve levels affect the Fed's ability to conduct monetary policy.
When reserves are in short supply competition for them can introduce high levels of volatility in market-based short-term rates, and push them far from levels targeted by the central bank.
A shortage of reserves in September 2019 caused the Fed to intervene by borrowing and purchasing Treasury securities to add reserves back to the system to ensure its federal funds rate target stayed at desired levels, effectively ending its first effort at quantitative tightening.
The Fed has expressed confidence it can draw down reserves in a way that will not affect its interest rate target.
The paper suggests the way banks are managing liquidity, even in a time of ample liquidity, could challenge that view.
And while the paper doesn't say what it means for balance sheet policy, already some private sector forecasters are speculating the Fed may be forced to slow or halt its balance sheet contraction next year on a sooner-than-expected tightness of bank reserve levels.
One reason to expect the Fed to more easily manage any sort of intermittent reserve shortage is the existence of its so-called Standing Repo Facility, which allows eligible banks to quickly convert Treasuries into short-term cash loans.
Some want that tool expanded, arguing it would reduce the chance the Fed would need to intervene in the event of any sort of market turbulence.
Reporting by Michael S. Derby; Editing by Dan Burns
https://www.reuters.com/markets/us/ny-f ... 022-11-18/