Federal Reserve Officials: Encourage Institutions to Actively Use SRF Tools to Address Market Liquidity Challenges

Roberto Perli, an official at the New York Fed responsible for implementing monetary policy, stated on Thursday that although market liquidity remains ample, the Federal Reserve is encouraging financial institutions to use the Standing Repo Facility (SRF) more actively when appropriate. Perli noted, "I encourage counterparties to use the SRF when it makes economic sense. This tool exists to support the effective implementation of monetary policy and facilitate smooth market operations. If the SRF can function as intended, it will be in everyone's best interest." In his speech, Perli reiterated that the New York Fed will soon adjust its operational arrangements to extend the current SRF operations, which are only conducted in the afternoon, to the morning session and complete settlement on the same day. This is an important step in enhancing the tool's effectiveness and, marginally, helps the Fed maintain a relatively smaller balance sheet size. Perli pointed out that the ongoing balance sheet reduction may still have some way to go, despite signs that money market liquidity is tightening. As the Fed reduces its balance sheet and lowers reserve levels, upward pressure on money market rates may increase.