NEW YORK – Leader of the Federal Reserve Bank of Philadelphia
He said Wednesday that although he was very skeptical about the central bank's rate cuts last year, he believes monetary policy is now in a "good place."
"I don't think we should move rates in any direction" in an economy that generally works well, despite considerable uncertainty about the outlook, Harker said while speaking at the Official Forum of Monetary and Financial Institutions in New York.
Harker also said that substantial injections of central bank liquidity in the money markets have helped calm that key part of the nation's financial infrastructure.
Mr. Harker will have a voting role in this year's Federal Open Market Committee, which sets the rates. He was skeptical about the Federal Reserve's push to lower short-term rates last year. It cut its range of target rates overnight three times to offset the risks to the economy posed by trade uncertainty and the slowdown in global growth.
Several Fed officials opposed that path. But regardless of the position of the officials, those who spoke this year want to keep the rates stable and measure the impact of what the central bank did last year before making more changes in monetary policy.
Harker spent much of his appearance discussing what the Fed has been doing in the financial markets after short-term rates increased last year. Since then, the Federal Reserve has been adding both temporary and permanent money through a combination of what are called repurchase agreements, or repos, and direct purchases of the Treasures.
Those interventions have brought the Federal Reserve balance from around $ 3.8 billion in September to $ 4.1 billion now. The Fed also has about $ 211 billion in outstanding reposs as of last week, the last time the Fed provided data on its holdings.
Federal Reserve interventions "worked clearly, with an effective rate of federal funds maintained at a practically constant level since October, and repos markets remain calm," Harker said. "Instead of wreaking havoc, the end of the year was not an event."
His comments did not address monetary policy or economic outlook.
Fed repositories add money to the financial system in the short term by acquiring Treasury securities, agencies and mortgages from eligible banks, in what are effectively secured loans that last from one day to a few weeks. Repos are an old part of the Fed's toolkit to influence short-term rates to influence the cost of credit, which in turn affects the economy's path consistent with Fed inflation and targets. labor.
Fed interventions began to increase in September after short-term rates unexpectedly increased. While the temporary forces were blamed for much of the problem, long-term problems were also at stake. Originally, the Fed expected to close its repos operations at the end of January, but on Tuesday announced that it will expand until at least mid-February. Many observers expect them to continue longer.
Harker said in his speech that the Fed learned that the financial system needs a greater amount of reserves to run smoothly than officials once thought. He added that it is now clear that when the banking system's reserves run out, it can now generate "large" peaks in short-term interest rates.
Harker also said that banks are still "extremely reluctant" to take advantage of emergency loans through the Federal Reserve's discount window.
He also said that a tool called the Permanent Repository Facility is being considered, which would allow banks to quickly convert Treasury holdings into liquidity and presumably limit rate increases. "We are in the process of evaluating potential costs and benefits, and exploring possible designs, as well as alternatives, so there is still a lot in the discourse, rather than in the decision phase," he said.
Write to Michael S. Derby at [email protected]
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