Fed’s Logan: The Federal Reserve Still Has Room to Reduce Excess Reserves, Banks Expected to Use SRF to Ease Liquidity Pressure in September

According to Jinse Finance, Dallas Federal Reserve President Lorie Logan stated on Monday that the Fed still has room to reduce excess reserves and expects banks to use its Standing Repo Facility (SRF) next month to ease any liquidity pressures. “We may see some temporary pressures around the September tax date and quarter-end. I was pleased to see the market use the SRF at the end of June, and I expect that, if necessary, they will similarly use our ‘ceiling tool’ in September.” This tool is designed to prevent liquidity shortages, allowing eligible institutions to quickly convert their holdings of U.S. Treasuries into cash and reducing the need for the Fed to intervene in emergencies. Logan noted that as reserves in the banking system decline, the Fed and other central banks should avoid expanding their balance sheets in response to banks’ short-term demand for reserves, or else risk “continuous expansion” of the balance sheet.