Dallas Federal Reserve Bank President Robert Kaplan on Friday blamed USA borrowing to fund a growing deficit for the liquidity crunch in overnight funding markets that the central bank earlier on Friday addressed with a new program to buy Treasury bills. "It is meant to ensure in an ample reserves regime that we are able to set the fed funds rate in the target range that we set".
"The Fed will do whatever it needs to do to keep funding rates near where they want them", said Ward McCarthy, chief financial economist for Jefferies in NY. Through that approach, the Fed sets monetary policy by controlling the interest rate charged on reserves instead of conducting daily market operations.More news: Phillies fire Kapler after two seasons
The Fed will initially aim to bring reserves to about $1.5 trillion, the level seen in early September, before a liquidity crunch led to a spike in short-term rates.
Earlier this week, Jerome Powell indicated that the Fed would start to expand its balance sheet but insisted the policy should not be considered a new phase of quantitative easing because it was not aimed at generally loosening the stance of monetary policy or boosting economic growth. However, the Fed reported that purchases of treasury bills would have little if any impact on the level of longer-term interest rates and broader financial conditions.More news: Didier Deschamps: "Not too serious for N'Golo Kanté".
The outlines of the trade deal were announced while Kaplan was giving his talk.
Kaplan blamed the lack of liquidity on the "dramatic increase" in government borrowing as well as regulatory changes since the financial crisis that make banks less willing to lend reserves to each other.More news: WhatsApp disappears from Google Play Store