MNI TRANSCRIPT: Powell on Money Markets

     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: I wonder if you're -- oh, sorry.  Steve Leaseman CNBC.  I've only done

this a dozen times.  I wonder if you're concerned about how the Federal Reserve

operated through the recent liquidity crunch in markets?  We talked to many

traders who said the tax date payment was known well in advance, there were

several reports for people pointing to September as a potential crunch time. 

You closed Monday at the top end of the federal funds rate.  Tuesday came along

and there wasn't an operation until 9:00 and no announcement, the second

operation until 4:00 in the afternoon.  Was The Fed listening to markets well

ahead of time?  Going back a year?  When there were blowouts in the overnight

rate at year-end and the turn of the year?  

   Are you concerned about how, for example, the New York Fed operated through

this? 

     A: I'd say that I doubt anyone is closer to and has more invested in

carefully following the, you know... the behavior of these markets.  Of course,

we were well aware of the tax payments and also of the settlement of the large

bond purchases.  We were vetch -- very much waiting for that.  Our sense is that

it surprised market participants a lot too.  People were writing about this and

publishing stories weeks ago.  It was a stronger response than we expected. So,

no, I'm not concerned about that, to answer your question.  I can go on a little

about how we're looking at that.  Why don't I do that?  So... as I mentioned, it

doesn't -- we don't see this as having implications for the broader economy or

the economic outlook, nor for our ability to control rates. 

   Strings in the money markets reflect forces that we saw coming and they had a

bigger effect than most folks anticipated.  Strong demand for cash to purchase

treasuries and pay corporate taxes.  We took appropriate actions to to address

those procedures, to keep the federal funds rate within the target range and

those measures were successful.  If we experience another episode of pressures

and money markets, we have the tools to address those pressures.  We will not

hesitate to use them. 

   Since we're talking about this, let me take a step back and say this. 

Earlier in the year, as you all recall, after careful study, over a period of

years, the committee announced a decision to commit monetary policy and reserve

regime.  We think this works well to implement rate decisions.  We use

adjustments in our administered rates, to keep the federal fund rates in the

target range.  It's designed so we don't expect to conduct frequent open market

operations for that purpose.  

   So... going forward, we're going to be very closely monitoring market

developments and assessing their implications for the appropriate level of

reserves.  And we're going to be assessing, you know... the question of when it

will be appropriate to resume the organic growth of our balance sheet.  I'm sure

we'll be revisiting that question, during this meeting period and at our next

meeting. 

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

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