The New York Fed Chief Is Facing His Biggest Test. Here’s His Response.

on Sep30
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The approach requires the Fed to hang on to large holdings of government-backed bonds to keep reserves, essentially currency deposits at the Fed, plentiful. Central bankers had thought that they had a long way to go before reserves became scarce. So until last month, they were shrinking their balance sheet and drawing down that supply.

But Mr. Williams said the recent episode showed him that the approach might require higher reserves than he had realized. That is important, because it could hint that the Fed will start growing its balance sheet again soon, something several of Mr. Williams colleagues have signaled over the past week.

Mr. Williams, who has a constant vote on monetary policy decisions made by the Federal Open Market Committee, was mum on the other major question facing policymakers — whether the Fed will cut rates beyond the two moves it has already made. He declined to give any hint about his preferences, arguing that amid uncertainty, the Fed should keep its options open.

Here is a look at how he is addressing the biggest questions facing the New York Fed and the central bank, in a curated, and partly paraphrased, transcript.

New York Times: Some market participants have said the Fed was too slow to intervene amid the recent disruption in overnight repurchase agreements, or repos. Can you walk us through the decision-making process?

Mr. Williams emphasized that data on the Fed’s policy rate, the federal fund rate, comes in slowly and the official figure is released on a delay — it comes out at 9 a.m. the following morning. That figured into the timing, Mr. Williams said, because “we need to explain why we’re intervening — the desk directive is very clear,” he said, referring to the rules set out by the policymaking Fed committee for the New York Fed to follow.

The bank is meant “to conduct open market operations, to keep the federal funds rate in the range.”

He noted that the Fed took market participant feedback from the first intervention into account. Since Sept. 17, it has announced a day in advance that it would provide liquidity to markets and how much. It also -announced on Sept. 20 that it would continue intervening through Oct. 10.

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