Fed's lender-of-last-resort role expands due to deficit-increasing proposals, impacting the $28-trillion Treasury market.

The Federal Reserve's role as a lender of last resort is expanding, potentially due to U.S. presidential candidates' deficit-increasing proposals. Recent use of the standing repo facility highlights issues in the $28-trillion Treasury market, worsened by reduced bank intermediation since the 2008 crisis. Experts warn that the Fed's increased market involvement could lead to asset bubbles, necessitating a redesign of financial regulations to better manage liquidity demands.

October 30, 2024
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