Federal Reserve officials: Encourage institutions to actively use SRF tools to address market liquidity challenges

Roberto Paley, the New York Fed's monetary policy officer, said on Thursday that while markets remained liquid, the central bank was encouraging Financial Institutions Groups to use the Standing Repo Facility more aggressively when appropriate. "I encourage counterparties to use the SRF when it makes economic sense," Mr. Paley said. "This tool exists to support the effective conduct of monetary policy and to promote the smooth functioning of markets. If the SRF functions as it was designed to, it will be in everyone's best interest." In his remarks, Mr. Paley reiterated that the New York Fed would in the near future adjust its operating arrangements to extend SRF operations, which are currently conducted only in the afternoon, to midday and close on the same day. This is an important step towards improving the effectiveness of the tool and, at the margin, helping the Fed maintain a relatively small balance sheet. Mr. Paley noted that continued balance sheet reduction could still be some way off, despite signs that money market liquidity is tightening. As the Fed shrinks its balance sheet and reduces its reserve level, upward pressure on money market interest rates is likely to increase.