By Michael S. Derby
NEW YORK, March 3 (Reuters) – Dallas Federal Reserve Chair Lorie Logan said on Friday the U.S. government bond market remained vulnerable to shocks that could cause widespread damage, adding that government officials should continue to make efforts to consolidate the financial system.
“The U.S. financial system has become increasingly vulnerable to core market failures because trading supply has not kept pace with demand as the size and complexity of the Treasury market has grown,” Logan said in a speech at an event at the University of Chicago School of Business Booth.
He noted that the rapid expansion of U.S. government debt and the shift in who buys and trades that debt, along with the diminishing role of large banks that once dominated the government debt market, have contributed to increased vulnerability to shocks. majors.
When problems reach such a level that they can threaten the basic functioning of markets, authorities should take action, as they have done in the past, the official said.
Logan pointed to the intervention of the US central bank, which borrowed and then bought huge amounts of government debt at the start of the coronavirus pandemic three years ago, as a key chapter in policymakers’ efforts to save a failing market. .
Logan, who has a vote at this year’s Federal Open Market Committee (FOMC) monetary policy meetings, did not comment on the outlook for monetary policy and the economy.
Prior to assuming the role of head of the Dallas Fed last year, Logan was a key New York Fed official in the design and implementation of FOMC monetary policy guidelines. (Reporting by Michael S. Derby Editing in Spanish by Javier López de Lérida)