Author: Michael S. Derby
New York (Reuters) – a federal reserve system that wraps its latest monetary policy meetings on Wednesday is about to enter one of the more demanding periods of management of what most observers believe that it is an upcoming end game for its balance sheet.
This is because, even though in the coming months, the financial sector liquidity is expected to be reduced to a level that will allow it to stop lowering the treasury and mortgage bonds from its balance How tight liquidity is.
Why? The US government ceiling is again a problem, and as long as it is resolved and lending can increase, the current ceiling will affect the state treasury emissions in a way that conceals the difficult effort to assess the liquidity of the money market.
Fed, since 2022, allows bonds to escape and is not replaced in an effort called quantitative tightening or QT. This reduced the US central bank from the top of about $ 9 trillion to the current mark of $ 6.9 trillion. The aim of the Fed is to pull out excessive liquidity to allow permanent fixed control over the federal funds, its primary tool affecting the momentum of the economy, and allowing normal levels of money market volatility.
Fed officials are also trying to avoid storms in the markets in September 2019, when the previous version of QT unexpectedly hit the wall and forced the central bank to start adding liquidity back to the markets. To avert the repetition, Fed officials have already slowed the pace of QT, have accepted new tools for providing rapid liquidity and created new public methods of measurement of liquidity on the market.
Even without problems with government debt management, the observation of the QT stop was difficult, but now it's harder. Enrollment from Fed 17.-18. December warned: “The potential renewal of the debt limit in 2025 could lead to substantial changes in the federal reserve obligations that could be challenges in the evaluation of reserve conditions”.
The document also stated that the ceiling machinations of debt could affect other representatives to market liquidity, report report Fed. This tool, which allows cash funds and other institutions to park cash at the central bank, is released for a certain period of time. But with less cash register accounts on the market due to government loans, financial companies could move cash back to Reverse Repo and cover the signal of the market liquidity that it has so far provided.
“Substantial shifts”
The private sector predictions are still on board with the Fed December. “The potential renewal of the debt limit in 2025 could lead to substantial shifts in the federal reserve obligations that could represent challenges in the evaluation of reserve conditions,” analysts at LH Meyer said.
