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New York Fed’s Logan says staff will carefully monitor money markets -Breaking


© Reuters. This illustration was taken February 14, 2022. REUTERS/Dado Ruvic/Illustration

By Jonnelle Marte

(Reuters) – The Federal Reserve’s almost $9 trillion balance sheet is more vulnerable than ever. Policymakers are still going to be vigilant about money markets, a top bank official stated on Wednesday.

Lorie Logan from the New York Fed, executive vice president, stated that standing repo facilities by the Fed should be used to support markets stability as central banks shrink their bond holdings.

Logan stated that staff will closely monitor changes in the money market to better understand fluctuations in reserve conditions during a New York University webinar.

Logan stated that policymakers are keen to reduce holdings by letting securities mature.

Officials have suggested that the Fed might need to sell some of its mortgage-backed securities to accelerate the transition to a portfolio mainly made up of Treasury securities. Logan however stated that these decisions will be taken later.

She shared estimates of what the potential balance sheet runoff might look like. Over the next few decades, average principal payments of around $80 million could come from Treasury holdings.

She said that the average monthly runoff of mortgage-backed securities would be about $25 billion over the next few decades, although the pace and impact of mortgage rates will determine the actual pace.

After the central bank bought assets to support markets during the pandemic, the Fed saw its balance sheet increase by twofold. Logan, the New York Fed’s Market Operations Manager, stated that future asset purchases for market support will be very rare.

She stated that she believes it is extremely rare for circumstances to warrant substantial intervention in support of market functioning.

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