Key facts
- Logan said the Fed should strengthen market-functioning tools without providing unnecessary economic stimulus.
- Logan said the Fed should extend discount window operations to weekends and weekday holidays.
- Logan urged the Fed to develop the ability to centrally clear its repo operations.
- Logan said the Fed should further develop its ability to lend to designated financial market utilities.
- Logan said stronger-than-expected inflation data and comments from other officials lifted bets on a half-point December hike.
Dallas Fed President Lorie Logan said on November 13 that the US Treasury market is functioning "very well" despite bouts of interest-rate volatility, and that the Federal Reserve should strengthen its tools for supporting market functioning in both the Treasury market and bank funding.
Logan, who was previously the New York Fed's chief of open market operations, said Fed backstops "must avoid working at cross purposes with monetary policy." She said it is prudent for the Federal Open Market Committee to strengthen its market-functioning tools "without providing unnecessary economic stimulus," and that she does not see a need for market intervention at present.
She said interventions during a tightening cycle complicate the Fed's communications, because the same asset purchases have historically served both to support market liquidity and to provide policy accommodation. "If Treasury market dysfunction emerged now, the FOMC would not have the luxury of using the same asset purchases to accomplish two goals," she said.
Logan repeated her view from a speech earlier in the week that policy needs to be more restrictive with inflation trending too high. On Tuesday she laid out the case for raising rates by a quarter percentage point at least two more times, perhaps quickly. The Fed raised its policy rate by a quarter point in September and left rates unchanged late last month. Stronger-than-expected inflation data this week and comments from other officials, including Governor Christopher Waller, have lifted market bets that the Fed may deliver a half-point hike at its meeting in early December.
On bank funding, Logan said banks have improved their access to contingent funding, or liquidity during periods of funding market stress, and should keep preparing to use facilities such as the discount window. She said the Fed could improve its lending tools, noting that growth in payments services such as FedNow could create weekend and holiday liquidity needs, and that the Fed plans to extend Fedwire Funds operations to Sundays and weekday holidays within the next two to three years.
She said the Fed should extend discount window operations to weekends and holidays, adding: "This is not a change any one Reserve Bank can make on its own." She also urged the Fed to develop the ability to centrally clear its repo operations, saying this "would reduce the balance sheet costs of intermediation."
Logan said the Fed should further develop its ability to lend to the eight designated financial market utilities, which she said include major clearing houses, the Depository Trust Corp and Chicago Mercantile Exchange, during unusual or exigent circumstances. She called severe liquidity stress at such a utility "an extreme and unlikely scenario" but said the Fed "might have only a matter of hours to decide on and execute such a loan."