> The problem arises when this loan has to be repaid. At that point, the bank will have to repay $100 to recover $75 worth of collateral. This is not much of a

> The problem arises when this loan has to be repaid. At that point, the bank will have to repay $100 to recover $75 worth of collateral. This is not much of a problem if the Fed allows the loan to be rolled until the bond matures. Then, at maturity, the loan's principle is paid by face value of the bond. The only issue is that, in the meantime, the bank does have to pay interest to the Fed on the loan. This is a tightening; it's just not as tight. The face valve of the bond cancels the principle, the bond's coupon cancels some portion of the loan interest, and the only thing left at the end is a cashflow from the bank to the Fed representing the remaining interest. Heck, the Fed could make this cancellation explicit, create a bond representing this cash flow, and sell it to somebody else. This also doesn't prevent Powell from raising rates further. If anything, it eliminates a reason why he couldn't.