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New York Fed Notes Liquidity Concerns Ahead Of Anticipated Tightening 

August 18, 2015

Mark Melin, ValueWalk

Market liquidity is obviously important to the smooth functioning of an economic system, particularly as a potential September rate rise is under consideration. The big concern is that liquidity dries up during crisis, an event that, to a certain extent, is out of the control of the New York Federal Reserve. The semi-autonomous government agency, however, is taking precautionary steps to ensure that liquidity problems don’t occur in the bond market by publicly discussing the issue. When issues are known and do not "surprise", volatility can often be reduced to degrees, is one operating theory. Such might be the case with a recent New York Federal Reserve blog post.

In a New York Federal Reserve blog post that sometimes reflect more of the individual authors and their research than the balance of the web site, analysts Tobias Adrian, Michael Fleming, Daniel Stackman and Erik Vogt point out that liquidity during normalized conditions appears generally positive, but the real issue could be liquidity during crisis.

Read more: ValueWalk


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