The Federal Reserve system remains focused on maintaining “flexible and adaptable” policy implementation, a New York Fed official said Thursday, without offering any fresh details about the central bank’s forthcoming plans to taper monthly bond purchases.Officials are continuing to work on ways to improve the resiliency of the U.S. Treasury market, while also keeping their eye on technological innovations and the approaching end of LIBOR, or the London Interbank Offered Rate, said Lorie Logan, an executive vice president in the markets group of the New York Fed. The comments were made during a videoconference to the Money Marketeers of New York University.Her comments came as Fed policy makers are preparing to pull back soon on $120 billion in monthly bond purchases, which were intended to support the economy. Minutes of the Fed’s September meeting , released Wednesday, show that officials had discussed a plan to begin tapering those purchases in mid-November or mid-December. The discussion was around reducing asset purchases by $15 billion per month, although several policy makers preferred a more rapid pace.Strong inflation readings this week are raising concerns that the Fed might be pulling back on easy policy just as U.S. economic growth may be stagnating, and policy makers could be forced to lift interest rates by too much down the road, analysts say. Over the past two days, most yields have trended downward despite data showing that U.S. wholesale prices rose sharply in September, and headline consumer prices climbed by a greater-than-expected 5.4% year-over-year rate.
On Thursday, Treasury yields remained lower across the board after Logan’s speech, with the 10-year rate (XTUP:BX:TMUBMUSD10Y) hovering around 1.52%. Stocks were higher, though, with the Dow industrials (DOW:DJIA) rising by more than 400 points and the S&P 500 (S&P:SPX) and Nasdaq Composite (NASDAQ:COMP) indexes each rising by more than 1.5%. Since the COVID-19 pandemic that struck the U.S. early last year, the Fed has undertaken a number of measures to ensure the continued flow of credit to households and businesses, while maintaining the smooth functioning of financial markets. Its actions have left investors flush with cash, boosting the demand for investment options.The expansion of liquidity has occurred within the central bank’s “ample reserves” framework, “which has ensured effective policy implementation recently by adapting to evolving money market conditions,” according to Logan. “However, market structure continuously evolves, which in turn can have important implications for the framework.”In response to questions after her speech, Logan addressed the rapid increase in the usage of the Fed’s overnight reverse repo facility, as well her views on the debt-ceiling debate and on market-wide central clearing of Treasury securities. She wasn’t asked about the Fed’s tapering plans.
