Lorie Logan: Separate Emergency Treasury Purchases From Monetary Policy to Avoid Unintended Stimulus

On November 13, Dallas Fed President Lorie Logan said the Federal Reserve should manage Treasury purchases made to maintain market functioning separately from its regular monetary-policy portfolio, to prevent emergency liquidity support from unexpectedly easing financial conditions while inflation remains above target and weakening monetary restraint. According to Sina Finance, Logan said past purchases to restore Treasury-market liquidity typically occurred when the economy also needed easier policy, allowing the Fed to stabilize markets and stimulate the economy at the same time. She said that under current conditions of high inflation and restrictive monetary policy, emergency purchases could lower long-term Treasury term premiums and financing costs, conflicting with the Fed’s inflation-control goal. Logan proposed holding securities purchased to maintain market functioning in a separate account and committing to sell them as soon as possible. She said lending facilities should remain the Fed’s preferred response to market liquidity strains because they can provide funding without changing the direction of benchmark interest-rate policy. She also said the U.S. Treasury market is currently functioning normally and that volatile yields alone should not justify central bank intervention; action is warranted only if market intermediation is seriously impaired. Logan called for further improvements to the Fed’s liquidity support mechanisms, including extending discount window services to weekends and holidays to accommodate the development of real-time payment systems. She also recommended establishing voluntary central clearing capacity for open-market repo transactions before related regulatory requirements take effect in mid-2027, to reduce dealers’ balance-sheet costs. In addition, she suggested completing legal and collateral reviews in advance for eight systemically important financial market infrastructure institutions, so emergency loans can be provided quickly under extreme market stress.