New York Fed President: The Fed's decision to stop shrinking its balance sheet is based on market signals

John Williams, president of the Federal Reserve Bank of New York, said the recent volatility in the overnight funding market suggested the Fed was close to its desired level of bank reserves. "Based on the recent sustained stress in the repo market and other increasing signs of a shift in reserves from'abundant 'to'adequate', I expect we will soon reach an adequate level of reserves," Mr. Williams said in a note prepared for a conference in Frankfurt on Friday. Mr. Williams also said he expected short-term liquidity tools such as the Standing Repo Facility to continue to play a "critical role" in money markets to ensure the federal funds rate remains within the target range set by policymakers. "I fully expect that SRF will continue to be used aggressively in this way, thereby dampening upward pressure on money market rates," he said.