PEORIA, Ill. (Reuters) - Chicago Fed President Charles Evans said Wednesday that officials are still evaluating solutions for improving liquidity in money markets and studying why reserves are not circulating within the banking system.
The Fed announced last week that it will purchase $60 billion in short-term Treasury bills a month to bring the reserves in the banking system back to about $1.5 trillion, or the level seen in early September before there was volatility in money market rates. Evans said Wednesday Fed officials may “struggle with this longer than we would like.”
“It’s not just the level of reserves,” he said to reporters after an event in Peoria, Illinois. “A second dimension to that is reserves are concentrated in a small number of the larger banks, and what is their appetite for arbitraging repo rates against other rates when they have regulatory requirements. The entire market functioning has changed over the last 15 or more years.”
Reporting by Jonelle Marte, Editing by Chizu Nomiyama