Fed minutes show some officials want to prepare for market stress
TLT•Minutes from the Fed’s September 15-16 meeting said a few officials favored strengthening the central bank’s plans, communications and tools for possible Treasury market stress while limiting its market footprint. The minutes also recorded a quarter-point rate increase to 3.75%-4% and projections for another increase by year-end.
1. Planning for market stress
A few Fed participants said Treasury markets were functioning smoothly but stressed the importance of planning for market stress. They suggested strengthening the Fed’s strategy, communications and tools for addressing possible market dysfunction while limiting its footprint in the Treasury market.
2. Debate over intervention
The minutes covered a period of bond market volatility and rising government yields. Analyst Derek Tang said the comments suggested the Fed would intervene only if policy transmission were threatened, not simply because yields rose rapidly. He said standing repo operations and the discount window could be first-line tools. Fed officials also discussed technical Treasury bill buying, while Minneapolis Fed President Neel Kashkari said he saw no reason for intervention as the market appeared to be functioning fine.
