Logan Says Fed Should Strengthen Rate-Control Tools

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00:00The treasury market and money markets sit at the very core of the financial system. I know this

00:05group knows that quite well. The treasury market finances the U.S. government, provides a safe and

00:11liquid asset relied on by investors worldwide, and creates a benchmark for broader long-term

00:18interest rates. Money markets establish overnight risk-free interest rates that are building blocks

00:24for all other asset prices. They finance a wide range of assets, and they are where the Fed implements

00:30the stance of monetary policy. And these markets, of course, are tightly linked, because one of the

00:36main money markets is the repo market, where treasury securities are financed. These markets

00:43are extraordinarily deep and liquid, as befits their systemic role, but they're not invulnerable.

00:49As my Fed colleague, Roberto Perli, manager of the system open market account, noted in a

00:54recent speech, resilient funding liquidity makes the market as a whole more resilient.

01:00A strong Federal Reserve monetary policy implementation framework forms an important part of that

01:05resilience by ensuring ample liquidity will remain available across money markets at rates

01:11within or near the target range for the Fed funds rate. It's my view that rate control is not just

01:16about keeping the Fed funds rate in the target range. The Fed funds market is small, and the FOMC's

01:23desired stance of monetary policy must transmit smoothly into larger and broader markets, especially

01:28the repo market.