Dallas Federal Reserve Bank President Lorie Logan defended the Federal Reserve’s “ample reserves” approach to monetary policy while acknowledging the existence of liquidity risks in the financial system. Logan highlighted the effectiveness of the current approach in reducing liquidity strains but emphasized the need for additional efforts by both the Fed and banks. Proposed measures include maintaining access to the Fed’s emergency lending facility, the discount window, and regular testing of this access. Logan also stressed the importance of continuing the reduction of the Fed’s holdings of Treasuries and mortgage-backed securities.
Dallas Federal Reserve Bank President Lorie Logan has defended the Federal Reserve’s monetary policy approach centred around “ample reserves,” addressing the need for additional measures to mitigate liquidity risks within the financial system. In her remarks prepared for a European Central Bank conference in Frankfurt, Logan acknowledged recent instances of liquidity strains, such as those seen at the beginning of the pandemic. Despite the effectiveness of the current approach in reducing liquidity strains, she emphasized that challenges remain, requiring collaborative efforts from the Federal Reserve and banks.

Logan, drawing on her extensive experience managing the Fed’s bond portfolio at the New York Fed, outlined several ways to minimize liquidity risks. These measures include ensuring that banks maintain access to the Fed’s emergency lending facility, commonly known as the discount window, and conducting regular tests to evaluate this access.
While not delving into her economic or monetary policy outlook, Logan stressed the importance of the ongoing reduction of the Fed’s holdings of Treasuries and mortgage-backed securities. Highlighting the current economic landscape, she noted that the primary economic challenge is managing elevated inflation rather than addressing a deep recession. Logan emphasized the significance of gradually withdrawing economic stimulus by adjusting the level of assets to maintain ample, rather than abundant, reserves.
The proposed measures aim to enhance financial stability and further fortify the financial system against potential liquidity strains. Logan’s insights into liquidity management, shaped by her previous role at the New York Fed, underscore the importance of ongoing collaboration and proactive efforts to fully realize the benefits of the existing systems.