The provision of liquidity had the desired effect of reducing strains in markets, narrowing the dispersion of rates, and keeping the federal funds rate within the target range.5 Moving to more recent events, in March of this year the global spread of the pandemic led to a rapid and massive movement of funds around the world as investors sought to protect themselves from the highly uncertain and darkening economic outlook. These flows threatened to overwhelm the financial system and resulted in intense strain and disruption in short-term funding markets and markets for Treasury securities and agency mortgage-backed securities.6 Measures of market functioning deteriorated to levels near, or in some cases worse than, those we saw at the peak of the 2008 global financial crisis.7 In response to the extraordinary volatility and signs of market disruption caused by the pandemic, the Federal Reserve greatly expanded its repo operations and decisively and immediately began purchasing enormous quantities of U.S. Treasury securities and agency mortgage-backed securities. Our approach was to deliver a rapid and overwhelming response that would give assurance to market participants that liquidity would be there in the coming days and months. These actions, combined with the introduction of emergency lending facilities to provide liquidity to funding and credit markets, proved successful.
John C Williams: A solution to every puzzle Remarks (via videoconference) by Mr John C Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the 2020 US Treasury Market Conference, 29 September 2020. * * * Good morning, everyone, and welcome to the sixth annual U.S. Treasury Market Conference. I wish we were able to meet in person at the New York Fed. But, while the location for this year’s conference may have moved from an auditorium to your living room, the goal remains the same: To bring together market participants and representatives from five public sector bodies—the New York Fed, the Board of Governors, the Treasury, the SEC, and the CFTC. And, the events of the past year make the conversations we will have today all the more valuable and timely. Today, I’d like to begin with stressing the importance of well-functioning financial markets and then look at two recent episodes of volatility and the lessons learned. I’ll close by explaining the Fed’s role to support functioning in this critical part of the financial system. At last year’s conference, I spoke about the transition away from LIBOR.