Karen Petrou was interviewed this morning on Marketplace on the biggest challenge now facing the FOMC. Karen highlighted not the usual monetary-policy concerns – critical though they are – but rather the increased potential for serious market-liquidity problems given the dangerous combination of low volatility and increasingly illiquid books at major financial institutions. FedFin analyses have pointed to another issue that concerns us: increasing shortages of high-quality assets that will make it harder for the FRB to support the market under stress.
