November 04, 2022

Toomey Urges Fed to Resist New Bond Purchases

Pursue Treasury Market Structural Reforms Instead

Washington, D.C. – U.S. Senate Banking Committee Ranking Member Pat Toomey (R-Pa.) today urged the Federal Reserve (the Fed) to pursue durable market reforms rather than purchase taxpayer debt in response to increasing illiquidity in the U.S. Treasury market.

In a letter to Fed Chairman Jerome Powell, Ranking Member Toomey wrote:

“As the Fed has observed, there has been a ‘notable deterioration in Treasury market liquidity’ over the past year due to, among other things, less accommodative monetary policy associated with elevated inflation. In recent weeks, several measures of market liquidity have reached their lowest levels since the onset of the pandemic in 2020.”

Citing press reports that the Fed has discussed whether Treasury market illiquidity may prompt intervention, Senator Toomey urged the Fed to resist new bond purchases.

“I strongly urge you to resist such intervention, for at least two reasons. First, such action would undermine the Fed’s principal objective of fighting inflation, which continues to pose significant challenges for the U.S. economy. Second, it would repeat some of the mistakes of quantitative easing, such as obscuring the true cost and consequences of our mounting national debt.”

Instead, Senator Toomey urged the Fed and other federal regulators to pursue structural reforms—including modification of the supplementary leverage ratio (SLR) and further analysis of “all-to-all” trading—that would ensure the Treasury market functions smoothly, especially during times of stress.

The letter concludes by asking the Fed to provide answers to written questions concerning its approach to Treasury market reform by November 17, 2022.

To read Ranking Member Toomey’s full letter to Chairman Powell, click here.