Lorie Logan, Speech: Preventing and Responding to Dysfunction in Core Markets

The economy (and monetary policy) was not covered in this speech.

“Core bond markets, such as those for government debt, are crucial to the economy—not only because national governments obtain financing in these markets, but also because these markets are used for implementing monetary policy, provide a safe source of collateral and establish a benchmark yield curve that underpins financing for households, businesses, and state and local governments.”

“Breakdowns of trading and price discovery in core markets thus put a vast array of economic activity at risk. But I would emphasize that the type of dysfunction I have in mind is more extreme than merely low liquidity. I am referring, rather, to fundamental failures in the process of intermediating between buyers and sellers, or lenders and borrowers, and identifying a market-clearing price for their transactions.”

“That central problem is the first of three topics I’ll address today. I’ll then offer three guideposts that I believe should shape central bank interventions given this problem: transparency, backstop pricing and distinguishing support for market functioning from monetary accommodation. And finally, I’ll assess our March 2020 operations in light of these guideposts and draw out some implications for market regulation and infrastructure and for the central bank toolkit.”