Repo turmoil raises question on reserves: Fed

Bloomberg

Last week’s turmoil in money markets raises questions about the appropriate level of bank reserves in the financial system, Federal Reserve Bank of New York President John Williams said.
It is “important that we examine these recent market dynamics and their implications for the liquidity needs in relation to the overall amount of reserves held at the Federal Reserve,” Williams said in a speech in New York.
The New York Fed chief’s comments follow a week of volatility in money markets that was unprecedented in the years since the financial crisis. Short-term interest rates jumped amid the strain, pulling the US central bank’s benchmark rate above the target range and forcing the New York Fed to intervene with overnight cash loans for the
first time in a decade to quell the surge.
“We will continue to monitor and analyse developments closely,” Williams said, adding that officials “will assess the implications for the appropriate level of reserves and time to resume organic growth of
the Federal Reserve’s balance sheet.” That remark echoed a comment Fed Chairman Jerome Powell made to reporters at a press conference after the central bank cut rates for the second time in two months.
In the years after the crisis, the Fed expanded its balance sheet to $4.5 trillion through bond purchases designed to drive down long-term interest rates.