Fed’s Logan says the Treasury market is functioning ‘very well’ but the Fed should strengthen its support tools

Dallas Fed President Lorie Logan said the Treasury market is functioning “very well” but that the Federal Reserve needs to strengthen its support tools¹.

She made the remarks at the “Bank Funding in the Age of Instance Finance” conference at the Federal Reserve Bank of Dallas, in a speech on operational readiness and bank funding for depository institutions and the Fed³.

Logan called for a clearer separation of the Fed’s market operations². Describing one change, she said: “This would reduce the balance sheet costs of intermediation”⁵. “Funding from the Fed could then flow more efficiently to the broad market,” she added⁵.

Logan’s two points do not conflict: she judged current conditions in the Treasury market sound while arguing that the Fed’s backstop for it should be improved^1,4.

The rate backdrop

Logan spoke as stronger-than-expected inflation data this week and comments from other Fed officials, including Governor Christopher Waller, fuelled a rise in market bets⁴. Those bets point to the Fed possibly delivering a half-point rate rise at its meeting in early December¹.

The work on the Fed’s balance sheet is moving on a separate track. Recommendations from the Fed’s balance-sheet task force will likely come in the first quarter of 2027, a Fed official said last month².

Why it matters to investors

Logan’s comments separate two questions: how the Treasury market is functioning now, which she described favourably, and how well the Fed is equipped to support it under stress, which she said needs work^1,2.

Her focus on the cost of intermediation concerns how readily banks and dealers can use their balance sheets to make markets⁵. Her suggestion that Fed funding could flow more efficiently to the broad market points to changes in how the central bank’s facilities reach market participants beyond the banks that use them directly^3,5.

For bond investors, the design of these tools matters most in periods of stress, when the speed at which Fed liquidity reaches the market can affect how far yields move^1,2.

What to watch

The balance-sheet task force’s recommendations, expected in the first quarter of 2027, are the next marker for any changes to the Fed’s market operations². In the nearer term, the December meeting will show whether the market bets on a half-point rise were justified^1,4.

Further speeches from Logan and other officials may set out the specific changes she has in mind^3,5.