Fed’s Barr: Easing liquidity regulations to reduce Fed balance sheet not advisable
Finance Feds Barr: Easing liquidity regulations to reduce Fed balance sheet not advisable Federal Reserve (Fed) Governor Michael Barr said that lowering liquidity rules to get the central banks balance sheet smaller is a bad idea and could undermine the safety of the financial system, Reuters reported on Thursday. Key quotes Easing liquidity regulations to reduce Fed balance sheet not advisable. Reducing liquidity requirements would just heighten stability risks. Reduced balance sheet may boost funds to Fed liquidity facilities. Reduced Fed balance sheet would probably boost Fed interventions. Fed working to shift balance sheet duration to align with broader Treasury market. Doubtful liquidity coverage ratio adjustment will significantly impact reserve demand. Monetary policy toolkit has been effective for a long time. Effective monetary policy execution revolves around rate management. Generating reserves doesnt cost the Fed. Liquidity requirement should increase, not decrease. Returning to limited reserves would involve significant trade-offs. Market reaction At the time of writing, the US Dollar Index (DXY) is trading around 98.95, up 0.07% on the day.