Dallas Fed calls for stronger Treasury market and bank liquidity backstops

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Dallas Fed: Treasury & liquidity

Highlights

Dallas Fed President Lorie Logan urges strengthening of Fed backstop tools for the U.S. Treasury market without adding unnecessary stimulus, citing persistent inflation and possible further tightening.
Fed plans to extend Fedwire Funds operations to Sundays and holidays within two to three years, potentially expanding discount window access beyond the standard business calendar.
Logan advocates developing centrally cleared repo operations and bolstering emergency lending readiness to major financial market utilities due to risks of severe, time-sensitive liquidity events.

Treasury support tools under tighter policy

As reported by Reuters, Logan says Fed backstops for the U.S. Treasury market need to be strengthened in a way that does not work against monetary policy, especially when tighter settings still appear necessary. Speaking at a Dallas Fed conference on bank funding, she says the Federal Open Market Committee should improve its market-functioning tools without providing unnecessary economic stimulus.

Logan says there is no current need for market intervention, and describes the Treasury market as functioning very well despite bouts of rate volatility. But she warns that if dysfunction were to emerge during the current tightening cycle, the Fed would face a harder communications challenge because asset purchases could no longer easily serve both liquidity support and economic accommodation.

She reiterates her view that inflation remains too high and policy needs to become more restrictive. Earlier in the week, she argued for at least two more quarter-point rate increases, while stronger-than-expected inflation data and remarks from other officials, including Governor Christopher Waller, have lifted market expectations that the Fed could opt for a half-point increase at its early December meeting.

Weekend liquidity access and market infrastructure

Logan says banks have improved their access to contingent funding over the last three years, but should keep preparing to use facilities such as the Fed's discount window during periods of funding stress. She adds that the Fed should also upgrade its own lending tools to match changes in payment flows and market infrastructure.

With services such as FedNow and private-sector payment platforms increasing the possibility of weekend and holiday liquidity needs, Logan says discount window operations should be extended beyond the standard business calendar. She notes that the Fed plans to expand Fedwire Funds operations to Sundays and weekday holidays within the next two to three years, and says any related change to discount window availability would require discussion across the Reserve Banks.

She also urges the Fed to develop the operational capacity for centrally cleared repo operations, saying that would reduce intermediation balance-sheet costs and help funding flow more efficiently across the market. In addition, she says the central bank should further strengthen its readiness to lend in unusual or exigent circumstances to the eight designated financial market utilities, including major clearing houses, the Depository Trust Corp and Chicago Mercantile Exchange, because a severe liquidity event could leave only hours to decide and execute a loan.

Earlier, we reported on U.S. bank stability in Q3 2026 as higher interest rates tested operating conditions.

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