The U.S. financial authorities are trying to determine the right time to start considering how to step back from shrinking the company’s balance sheet. This suggests that the end may be closer than previously expected.
Minutes from last month’s Federal Open Market Committee (FOMC) meeting discussed technical factors that will determine when to slow the pace of run-off, known as quantitative tightening (QT). Several participants suggested that a start would be appropriate. The committee’s plan suggests that the pace of balance sheet reduction will be slowed until reserve balances are “slightly above the level judged to be consistent with ample reserves,” and then halted. , several participants pointed out.
There has been much debate in recent months about whether U.S. authorities have misjudged how much tightening they can tighten without causing disruption to markets such as overnight repo markets, which are critical to the financial system.
The balance of reserves is currently $3.48 trillion (approximately 499 trillion yen), well above the level at the start of balance sheet reduction in 2022, but there are concerns that it is not as ample as authorities think. Officials learned a lesson in 2019 when they were forced to intervene after overnight market interest rates rose five times to 10%.
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“Everyone sticks to their plans until they get hit,” said Blake Gwin, head of U.S. interest rate strategy at RBC Capital Markets. “I immediately changed course,” he said. He expects QT to end gradually in mid-2024.
For more than a year and a half, authorities have been running off up to $60 billion in U.S. Treasuries and $35 billion in agency debt each month.
Original title:Markets See Fed’s QT Exit Nearing as Minutes Reveal Early Talks(excerpt)
2024-01-04 03:10:59
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