MNI TRANSCRIPT: Powell on Liquidity

     WASHINGTON (MNI) - The following is the portion of a transcript from

Federal Reserve Chairman Jerome Powell's press conference after the FOMC meeting

Wednesday:

     Q: The Fed balance sheet, you all recently resumed purchases of treasury

bills. Is wondering how long do you expect that to continue and given the fact

that the repo operation it is seems like the Fed is having to increase the

amount of temporary liquidity that it is injecting in to the system. Do you feel

like it is just that there is not enough reserves in the system. Do you have a

good sense of what's is going on there?

     A: We expect bill purchase to continue in to the second quarter of next

year. Through January. In terms of the causes, so there is a lot of forensic

work going on by us and by market participants and all kinds of analysts. And,

you know, one thing is that we think we need reserves to be back up to the

level, the minimum level of reserves that we can have during the various

fluctuations that you see with reserves is something like 1.45 trillion or a

little higher. And that's the level in early September. So we are going to be

adding reserves to get back to that place. That's one thing. There are also it

may be -- one thing that was surprising about the episode was that liquidity

didn't seem to flow as one might have expected. We had surveyed the bajs

carefully about what was their lowest comfort level of reserves and many banks

that were well above that level did not take that excess cash and invest it in

the repo market at much higher rates. They didn't do that. And so the question

is why and are there things that we can do that would -- adjustments that we

could make that would allow liquidity to flow more easily in the system without

sacrificing safety or soundness. Those are not things that can happen -- that

can -- really address the situation in the short term but those are a range of

things this we are looking at as well.

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

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