Fed slows tapering to avoid 'disturbances'
The Federal Reserve is considering slowing down its balance sheet reduction, a move that could impact financial markets. The focus is on slowing rather than ending the quantitative tightening policy.
🏦 The Federal Reserve officials are set to discuss the slowdown of quantitative tightening at this month's policy meeting.
💰 Despite halting interest rate hikes last summer, the Fed continues to tighten monetary policy by reducing its holdings of bonds and assets by about $800 billion per month.
📈 Concerns arise as the rapid pace of balance sheet reduction may deplete reserve funds quickly, leading to potential market disruptions.
💸 Signs indicate a rapid decrease in cash surplus in the money markets, with overnight reverse repo balances declining faster than expected.
🏦 The current pace of balance sheet reduction is twice the amount from five years ago, posing risks of rapidly depleting reserve funds and causing a surge in money market interest rates.
📆 The Fed is contemplating the slowdown due to the increased demand for reserve funds in the banking system compared to five years ago.
⏰ $JPMorgan Chase(JPM)$ predicts that the Fed will announce a schedule for the balance sheet reduction slowdown in January, convey it in February minutes, officially agree on it in mid-March, and implement it starting April, reducing the monthly reduction of Treasury holdings from $600 billion to $300 billion.
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