Last weekend, there was a seminar for the American Economic Association.

Last weekend, there was a seminar for the American Economic Association. From the perspective of the Fed, the Dallas Fed had no choice but to look at Governor Lori Logan’s comments. I was saying that we should think about reducing quantitative tightening…. Let’s think about why this story came out.

In September 2019, there was a repo, and the Fed ended quantitative tightening… We were in the process of lowering the benchmark interest rate. For reference, there was a surprise yuan depreciation by China in August of that year… And to cover that, the United States was ramping up the intensity of its insurance rate cuts, and the problem is, despite the rate cuts, in the short-term financial markets, there’s a repo crisis. I can’t explain it all right now. … It’s just that the American banks don’t have enough reserves to pay, so the trauma of this is so strong that the Fed, with additional interest rate cuts, goes through similar quantitative easing. It’s completely coming off the tightening atmosphere that’s been going on until 2018.

At that time, the reserves of the banking sector were… It was about 8 percent of GDP, so what they’re talking about is, when the reserves are about 8 to 10 percent of GDP… It’s warning that the possibility of a repo crisis could increase as it becomes a risk level again. Now, the Fed has been on quantitative tightening since June 22, but despite quantitative tightening, the bank’s reserves were increasing… There are two reasons. One is that the reverse repo has a significant amount of money in it, and the other is that it has been released by emergency liquidity programs for banks like BTFP. BTFP was introduced when SVB died in March of last year. It will be for a year. Probably, it will be difficult to extend this in March of this year…

Anyway.. BTFP is almost over… In reverse repo, money is shrinking at a fast pace. If this becomes an anchor, from then on, the reserve will decrease. The reserve is about $3.5 trillion in the U.S. banking sector right now. … Because we’re reducing this by $95 billion a month, we’re going to reduce this by almost $1.1 trillion a year, so for a moment, how much reserves do we need? I said earlier that it’s 8 to 10 percent of GDP… It’s just a couple of and a half to 2.8 trillion dollars, so now it’s three and a half trillion dollars, so it’s not a big deal if it’s reduced by about 0.7 to a trillion dollars. There’s still money left in the reverse repo. There’s also a buffer in the reserve… Quantitative tightening may still continue.

Well, that’s where the important thing comes in, even at the same level of reserves… The reaction may be different. What this means is… There’s an average error. The reserve requirement for 2019 and the reserve requirement for now… This could be different. Unlike 2019, the strength of small and medium-sized banks in the United States is very weak right now. After the SVB crisis last year, the concentration of funds to large U.S. banks has intensified. So even with the same reserve requirement, the reserve requirement for small and medium-sized banks is small… Big banks are overflowing, even if they’re the same household assets… In the case where the assets are evenly spread… If you’re focused on the wealthy… The strength of the economy may change, if the reserves are reduced here, the crisis of small and medium-sized banks could resurface… Then there could be a short-term financial market crisis from small and medium-sized banks… This could lead to an emergency rate cut by the Fed, which dramatically cuts interest rates at a time when inflation has not been brought under control… From the Fed’s point of view, it would be a very puzzling choice.

Is the Fed’s misfortune the market’s happiness… The market is taking hostages constantly, taking growth hostage… And they continue to threaten the Fed with financial system instability hostage, lower interest rates, release money, or threaten to kill all of them… And the financial markets are going crazy in advance because they know that such a future is set. Position it in advance… If you drive the Fed towards that… Will victory be the party that won…

However, just as the Jijun in 2019 and the Jijun now are different, the Fed then and the Fed now may be different. The two are different. One is that you have a fund infusion tool like a standing repo. The other is that you have experience with the repo crisis in 2019. Personally, I’d like to put a lot of weight on the latter… There’s a woman who led the desk of the New York Federation to solve the Lepoe crisis, and her name is Lori Logan.

Since then, you have made a lot of comments after you moved to the Dallas Federation. Personally, I value this person’s remarks the most when it comes to short-term financial markets. In the wake of the 2019 repo crisis… Lori Logan performed better than Williams, a former scholar at the New York Fed… That’s what he said at this National Economic Association about short-term financial markets that are attracting market attention.

The key is that funds are being reduced in reverse repo, because this could create problems in the future… We need to adjust the speed of quantitative tightening. Wow… I can cheer with that… More importantly… That’s why you control the speed. You have to slow it down like this… You can suddenly stop shoveling in the middle of the day to stop quantitative tightening. If you reduce financial markets too strongly, you can fall down in one moment… Isn’t it coming to the conclusion that if we slowly reduce this, we can continue to tighten.. is this comment tightening.. is it easing…. Perhaps a re-enactment of large-scale monetary loosening with a sharp halt to quantitative tightening and a sharp cut in interest rates… I think Lori Logan is presenting a solution to the market expectation(?) of .

What I feel from Lori Logan’s comments… Repo crisis in 2019… You may have experienced that, but the other one is… Unexpected financial market shock that financial markets are paying attention to…And the Fed is also paying attention, and it’s got a considerable amount of thought, and if you get beaten up in 2019 and you don’t know what’s going to happen, well, this time, it means that you’ve already got a post on this road.

Development of various tools (standing repo), experience at the time… And the contrast that we’re already doing.. I think it’s the biggest difference between 2019 and now. Here’s today’s essay line. Thank you.