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Free AccessBRIEF: ECB's Panetta-Time To Start Thinking Of NGEU Successor
MNI China Daily Summary: Wednesday, Aug 21
MNI POLICY: Fed's Bullard Calls For Repo Facility
By Jean Yung
WASHINGTON (MNI) - Federal Reserve Bank of St. Louis President Jim Bullard
on Monday called for the Fed to launch a standing repo facility to put a cap on
money market rates, saying that it would be preferable to a re-expansion of the
Fed's balance sheet.
He also again urged the Fed to lower interest rates by another
quarter-point to offset damage to the U.S. economy from the U.S.-China trade
war.
"It's not completely clear to me that the volatility (in money markets last
week) was caused by a shortage of reserves in the system," Bullard told
reporters after speaking in Effingham, Illinois.
"I think there may have been other factors, and I think the repo facility
would put a cap on rates in this kind of situation."
A standing repo facility would mirror the Fed's existing reverse repo
facility and "help us meet an international standard for how this is done in
central banking," Bullard said. Fed Chair Jay Powell indicated last week the
central bank would soon consider the use of such a tool, where financial
institutions could swap collateral for overnight cash borrowings.
"You probably would not have to use it most of the time, because its mere
existence would stabilize trading," Bullard added.
--'GO ANOTHER 25'
The protracted trade war is chilling global manufacturing and investment,
as evidenced in European manufacturing data Monday, Bullard said, and tariffs
are likely to stay until after the U.S. presidential election in 2020.
The Chinese might prefer to wait until after the election to commit to any
deal that would lock them in for a decade or more, he said. IHS Markit on Monday
said German composite PMI shrank for the first time in over six years.
"Reading the data today, I would go another 25 (bps)," Bullard said. "We
have a trade war going on. It's possible that that will reverberate to U.S.
growth, so we're taking out some insurance against that."
Bullard said he does not expect the U.S. economy to hit the Fed's 2%
inflation target this year or next, despite signs that core inflation has
started to rebound.
"Unless the Fed's easing moves are able to push up inflation, I don't think
we'll hit our target over the forecast horizon," he said.
--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com
[TOPICS: MMUFE$,M$U$$$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.