(Bloomberg) -- Last week’s turmoil in money markets raises questions about the appropriate level of bank reserves in the financial system, Federal Reserve Bank of New York President John Williams said.

It is “important that we examine these recent market dynamics and their implications for the liquidity needs in relation to the overall amount of reserves held at the Federal Reserve,” Williams said Monday in remarks prepared for a speech in New York.

The New York Fed chief’s comments follow a week of volatility in money markets that was unprecedented in the years since the financial crisis. Short-term interest rates jumped amid the strain, pulling the U.S. central bank’s benchmark rate above the target range and forcing the New York Fed to intervene with overnight cash loans for the first time in a decade to quell the surge.

“We will continue to monitor and analyze developments closely,” Williams said, adding that officials “will assess the implications for the appropriate level of reserves and time to resume organic growth of the Federal Reserve’s balance sheet.” That remark echoed a comment Fed Chairman Jerome Powell made to reporters at a press conference on Wednesday after the central bank cut rates for the second time in two months.

In the years after the crisis, the Fed expanded its balance sheet to $4.5 trillion through bond purchases designed to drive down long-term interest rates. From October 2017 through July 2019, it partially unwound its bond portfolio, draining cash out of the banking system in the process.

Last week’s turmoil put attention on whether the Fed went too far in shrinking its securities holdings, and when the central bank would begin resuming balance-sheet expansion to keep pace with the needs of a growing economy.

“It is certainly possible that we will need to resume the organic growth of the balance sheet earlier than we thought,” Powell told reporters on Wednesday.

To contact the reporter on this story: Matthew Boesler in New York at mboesler1@bloomberg.net

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Alister Bull, Scott Lanman

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