Fed's Williams says rate-control toolkit is working well; discount window enhancements noted

Separately, Federal Reserve Vice Chair Philip Jefferson said on Tuesday that recent improvements to the central bank's emergency lending facility make it easier for financial institutions to use, supporting market liquidity, financial stability, and monetary policy implementation. Jefferson noted that by providing banks with a reliable source of liquidity, the discount window serves as a shock absorber during periods of market stress by reducing the risk of forced sales of Treasury securities. He added that the Fed has made a number of enhancements to the lending facility in recent years, including the introduction of a self-service portal that now handles 60% of discount window loans and allows banks to communicate with their regional Fed bank electronically instead of by phone. Banks say the system makes it easier, faster, and more efficient to borrow from the central bank, Jefferson said.

Williams emphasized that while the framework has worked well, it is not static and must adapt to changes in financial market structure. He indicated that there should be little to no opportunity cost to holding reserves at the central bank, as a high opportunity cost is inefficient and creates distortions, and that the Fed will adjust the supply of reserves if the underlying demand shifts. Williams did not comment on the outlook for monetary policy or interest rates. Jefferson did not address the economic or monetary policy outlook in his prepared remarks.