Fed Governor Michael Barr warns reducing liquidity requirements could heighten financial stability risks and increase Fed interventions.
Federal Reserve Governor Michael Barr stated that easing liquidity regulations to reduce the central bank’s balance sheet is inadvisable, citing potential risks to financial stability. He argued that lowering liquidity requirements could lead to more frequent Fed interventions rather than a safer system.
Barr noted that while the Fed is adjusting the duration of its balance sheet to align with broader Treasury markets, changes to the liquidity coverage ratio are unlikely to significantly impact reserve demand. He emphasized that monetary policy execution relies on rate management, not reserve levels.
The US Dollar Index (DXY) held steady at 98.95, up 0.07% on the day following the remarks.