MNI BRIEF: Logan Says Fed QT Has 'Room To Run,' RRP Usage High

Dallas Federal Reserve President Lorie Logan said Monday the Fed's quantitative tightening program has "quite a bit of room" to run and suggested support for driving usage of the overnight reverse repo facility to zero.

"There's quite a bit of room for the balance sheet to continue to run off. In thinking about that, one of the things I look at is the overnight RP facility," she said in Q&A after a speech at NABE. "That facility still remains relatively high, over a trillion dollars, and so until that facility gets back down towards zero, I think that there's still plenty of room for the securities portfolio to decline. And even once we get to that point, there's a sense that the amount of reserves in the system are still very ample, so there could be room for further decline."

In her speech, Logan also again showed support for continuing QT while simultaneously cutting the fed funds rate. "There will presumably come a time when we are returning the fed funds rate to a neutral level from above. Normalizing the fed funds rate in that way would be entirely consistent with continuing to normalize our asset holdings." (See: MNI INTERVIEW: Reserve Scarcity Yet To Materialize - Fed Econ)

Money market funds and others on Friday put USD1.28 trillion into the Fed’s ON RRP facility, close to the lowest level in two years and half of its USD2.6 trillion peak. Logan said Monday the expectation of lower Fed asset holdings over time implies that other investors will need to hold more long-duration securities, "which appears to be one factor among the many contributing to higher term premiums."