Core Viewpoint - The Dallas Fed President Logan indicated that the Federal Reserve still has room to reduce excess reserves and expects banks to utilize the Standing Repo Facility (SRF) next month to alleviate any liquidity pressures [1] Group 1: Federal Reserve Actions - The SRF tool is designed to prevent liquidity shortages by allowing eligible institutions to quickly convert their holdings of U.S. Treasuries into cash, thereby reducing the need for Federal Reserve intervention in emergencies [1] - Logan expressed optimism about the market's use of the SRF during the June quarter-end and anticipates similar usage in September if necessary [1] Group 2: Banking System and Reserve Management - As reserves in the banking system decline, it is crucial for the Federal Reserve and other central banks to avoid expanding their balance sheets due to short-term demand for reserves from banks, as this could lead to a "continuously expanding" balance sheet risk [1]

Core Viewpoint - The New York Federal Reserve plans to incorporate early settlement operations of a key liquidity support tool into its regular schedule to enhance and strengthen this liquidity tool, supporting stable financial market operations [1] Group 1: Federal Reserve Actions - The Federal Open Market Committee (FOMC) agreed in March to "significantly slow" the pace of balance sheet reduction to prevent excessive liquidity withdrawal from the market [1] - The New York Fed's recent normalization of early repurchase operations is seen as a measure to ensure market stability and liquidity, especially in light of volatility in the U.S. Treasury market due to tariff policies [1][6] - The Fed is expanding the liquidity "insurance layer" in financial markets to prevent short-term funding mismatches and liquidity shortages during high yield fluctuations [1][7] Group 2: Market Reactions and Concerns - The global financial market's renewed focus on the Standing Repo Facility (SRF) follows significant volatility in the U.S. Treasury market triggered by new trade policies [5] - Concerns about market movements due to trade policy uncertainty have led to a "real and significant" deterioration in financial market liquidity, although the repo market has shown resilience [5][6] - The New York Fed had already begun providing additional daily repo operations before the recent market volatility, aiming to prevent repo market rates from exceeding the Fed's target range [6] Group 3: Future Implications - The adjustments in monetary policy reflect the Fed's intention to add safety measures against potential funding mismatches in a high-rate environment, avoiding a repeat of the 2019 liquidity crisis [7] - The FOMC noted that while reserves remain high at approximately $3 trillion, certain indicators are nearing buffer limits, necessitating caution to avoid approaching critical points similar to those in 2019 [7] - If the 10-year Treasury yield exceeds 5% again, the Fed may consider pausing balance sheet reduction or even targeted expansion to stabilize the financial market's benchmark interest rate corridor [7]