Market Resilience Amid Fed Policies

By Michael S. Derby

NEW YORK (Reuters) – An official responsible for implementing Federal Reserve monetary policy stated on Friday that markets handled significant stress in the previous month effectively, as the Fed prepares to enhance a key liquidity tool.

“Although liquidity in Treasury cash markets became strained in early April, those markets continued to function, partly due to the resilience of funding liquidity in the Treasury repo market,” said Roberto Perli, manager of the Fed’s System Open Market Account, in a speech drafted for a conference in Washington.

Perli noted that while markets managed the stress caused by the Trump administration’s announcement of extensive trade tariffs, this situation highlighted the necessity for the Fed to explore ways to deliver fast liquidity.

In response to feedback from the financial sector, Perli revealed that the Standing Repo Facility (SRF) operations will soon be available in the mornings and afternoons, not just as before. He remarked, “These early-settlement auctions, along with current afternoon auctions, will enhance the SRF’s effectiveness for monetary policy implementation and market functioning.”

The SRF enables eligible firms to swiftly convert Treasury securities into cash at the Fed, intended to assist in managing market liquidity needs.

Having remained mostly inactive since its launch except for limited usage last year, the SRF was not utilized significantly during early market volatility last month. The Fed had previously offered morning SRF operations at quarter-ends, and making it a standard option aligns with market expectations.

Despite the recent market turbulence, the Fed did not step in to support markets. Fed Chairman Jerome Powell indicated last month that the orderly trading, despite volatility, did not warrant intervention, stating it would require a high threshold for the central bank to engage.