“That time is now upon us,” Mr. Powell said. The episode prompted the Federal Reserve Bank of New York to jump into the market to smooth things over for the first time since the financial crisis. Many market observers have said that might not have been necessary had the central bank kept a bigger balance sheet. By shrinking its asset holdings, the Fed also drained bank reserves from the financial system. While several factors could have contributed to the episode, “it is clear that without a sufficient quantity of reserves in the banking system, even routine increases in funding pressures can lead to outsized movements in money market interest rates,” Mr. Powell said in his remarks.

Source: New York Times October 08, 2019 18:33 UTC