The New York Federal Reserve took unprecedented action to stabilize the Treasury market after it was disrupted at the start of the pandemic, serving as a stark reminder that markets must be strengthened to prepare for the next major shock, according to New York Fed Bank President John Williams on Wednesday.
"Severe disruptions to critical financial markets like we saw last spring should be rare," Williams said in remarks prepared for a virtual conference on the Treasury Market. But policymakers need to "think about how to shore up the Treasury market so it can better endure the next big shock," he said.
Williams said a review of the market disruptions seen last year revealed "a failure of the markets to function in the ways they were expected to do in response to those particular circumstances."
At the height of the crisis, the Fed calmed markets by offering up to $1 trillion in overnight repurchase agreement operations, or repo, and purchasing more than $300 billion in Treasuries per week. "The figures were staggering even for us," Williams said.
He believes that treasury market reform should incorporate ideas from both the public and private sectors.