MNI POLICY: Fed's Kaplan: Willing to Consider Repo Facility

By Evan Ryser

     WASHINGTON (MNI) - Federal Reserve Bank of Dallas President Rob Kaplan on

Thursday pressed the need for a lasting solution to soothe recent turmoil in

money markets, including creating a standing repo facility. 

     A standing facility where banks could borrow as needed "is an option that

we should be actively considering. It is an option that will be considered along

with other options" this fall, Kaplan told reporters on the sidelines of a

Dallas Fed conference on North American trade. 

     "We need to have stable and well-functioning markets," Kaplan said. 

     Rates in short-term repo markets spiked to unusually high levels last week

as heavy Treasury bond issuance and a mid-September deadline for U.S. corporate

tax payments created an unexpectedly acute shortage of bank reserves.

     The New York Fed has stepped in over the course of several days injecting

liquidity into the market, in an effort to bring the repo rate back in line with

other money market rates.

     Fed Chair Jay Powell last week suggested that the Fed may announce in

October further open market operations to stabilize short-term money markets and

in addition will be looking at other long-term options to help stabilize the

market. 

     -- Trade and Immigration

     Kaplan separately called for greater certainty in trade policy and the

positive effects of immigration on the U.S. economy. 

     Dallas Fed research suggests that certainty in trade and immigration policy

are crucial in supporting growth.  

     "There is a difference between a trade dispute and trade uncertainty,"

Kaplan said. "Trade uncertainty is having more of an effect."

     When asked about USMCA, a successor to NAFTA that is still awaiting

ratification in the U.S. Congress, Kaplan said it is "overwhelmingly" in the

interest of Americans to be passed. "We think it is critical." 

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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