Fed's Kaplan says US debt issuance top cause of reserves crunch

  • Fed's Kaplan says US debt issuance top cause of reserves crunch

Fed's Kaplan says US debt issuance top cause of reserves crunch

He had said previously that an easing of trade tensions could reduce risks to the economic outlook but also noted that since April U.S. trade policy has swung dramatically. -China trade deal could be a "positive development" for the USA economy, Dallas Federal Reserve Bank President Robert Kaplan said on Friday but repeated that he'll remain open-minded and watching data closely in the run-up to the Fed's October 29-30 policy meeting.

The Fed also said it would continue to inject cash into overnight lending markets until January by offering daily operations in the market for repurchase agreements, or repos.

"Effective October 15, 2019, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 1-3/4 to 2 percent".

The statement emphasizes that this isn't a change in the monetary policy stance.

Federal Reserve Chairman Jerome Powell revealed that the central bank will be expanding the size of its US$ 4 trillion balance sheet through further short-term T-bill purchases. 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.

Still, the spread between three-month and 10-year yields, the Federal Reserve's preferred measure of the yield curve, on Friday widened by the most since May 7. The curve had been mostly inverted since May 22 before moving into positive territory on Friday. The Fed stopped shrinking its balance sheet this summer, earlier than it had intended.

"The dramatic increase in Treasury issuance takes liquidity out of the system", Kaplan said at the Commonwealth Club.