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Getty Images New York Fed President John Williams has led the central bank’s three-month efforts to calm markets in wake of the unexpected spike in lending rate in mid-September.
The U.S. central bank’s efforts to restore calm to financial markets in the aftermath of a sudden spike in short-term borrowing costs in mid-September has proven to be successful, said New York Fed President John Williams on Wednesday.
“We are seeing money markets operate very smoothly,” Williams said, in an interview on CNBC.
Williams said he expected typical year-end pressures on interest rates over the next two weeks, but said the Fed was prepared and in a good position.
“We are in a very good position in terms of providing liquidity, providing reserves to the system” Williams said, with the goal of keeping the central bank’s benchmark interest rate in its 1.5%-1.75% range with markets operating smoothly, he added.
Short-term lending rates spiked in mid-September, and the volatility caught regulators and the banking industry off-guard.
The New York Fed has spent billions of dollars to purchase Treasury bills and is injecting billions more though overnight repo operations to keep credit flowing through short-term money markets. The Fed’s balance sheet has risen to $4.1 trillion from $3.8 trillion in September.
This response is having the intended effect, Williams said.
“Interest rates are behaving themselves exactly as we’d like to see in terms of the federal funds rate. We’re seeing market functioning return to what we saw before mid-September,” Williams said.
Williams said longer-term issues raised by the September turmoil were under study.
Read: Some market pros think repo market is broken
“Right now, I’m focused we’re carrying out the monetary policy direction that the FOMC set, and that’s working very well,” he said.
J. P. Morgan Chase CEO Jamie Dimon has argued that the turmoil was exacerbated by all the capital rules that the biggest banks have to follow. The Fed’s top bank supervisor, Randal Quarles, agrees with him.
Former Fed Governor Daniel Tarullo said the liquidity issues raises fundamental questions about the rules governing big banks.
Read: Repo market turmoil raises almost existential questions about post-crisis Wall Street rules
The yield on the 10-year Treasury note TMUBMUSD10Y, +2.14% has risen 47 basis points from its 52-week low of 1.456% hit in early September.
