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☆ Fed's reverse repo facility drawdown looms large in balance sheet debate
▼ + stars: | 2023-10-31 | by ( Michael S. Derby | ) www.reuters.com time to read: +6 min

Inflows have dropped sharply in recent months to around $1 trillion in the face of the Fed's aggressive policy tightening underway since last year. Fed officials, for their part, have said repeatedly they’ve got a lot of room to cut their holdings of Treasuries and mortgage-backed securities, a process that complements Fed rate increases. So far, reverse repos have “come down very smoothly,” Lorie Logan, president of the Dallas Fed said earlier this month. In his view, if reverse repos stopped contracting that could become a meaningful sign liquidity levels were getting tight enough for the Fed to change gears. "We still have a very large balance sheet" so the balance sheet cuts can likely continue over the next year and half to two years, she said, adding when it comes to getting to the finish line, "it's going to take a while."

Persons: they’ve, ” Lorie Logan, Logan, “ I’ve, Wells Fargo, Roberto Perli, Lou Crandall, Wrightson ICAP, Crandall reckons, Loretta Mester, Michael S, Dan Burns, Andrea Ricci Organizations: Fed, Dallas Fed, New York Fed, Reuters Graphics Reuters, Cleveland Fed, Thomson Locations: Treasuries, Wells

☆ CHART OF THE DAY: The Fed hits milestone after knocking $1 trillion in bonds off of its balance sheet
▼ + stars: | 2023-10-12 | by ( Matthew Fox | ) www.businessinsider.com time to read: +2 min

The Federal Reserve's campaign to reduce its balance sheet hit the $1 trillion mark last week. The Fed has been rolling off $100 billion in Treasury and mortgage bonds each month since last year. The Fed now has total assets of $7.96 trillion, below its peak of $8.97 trillion reached in early 2022. In its bid to tame inflation, the Fed launched a balance sheet reduction program in tandem with its ongoing interest rate hikes. It's balance sheet is still $3.78 trillion above its pre-pandemic levels of about $4.2 trillion.

Persons: —, Roberto Perli Organizations: Federal, Service, Fed, Treasury

☆ NY Fed's domestic markets chief to join Bank of New York Mellon
▼ + stars: | 2023-05-15 | by ( Michael S. Derby | ) www.reuters.com time to read: +1 min

May 15 (Reuters) - Bank of New York Mellon Corp on Monday said a top New York Federal Reserve official responsible for domestic markets will join the firm next month in a job focused on financial markets. Nathaniel Wuerffel, who last served as senior vice president at the New York Fed and was the New York Fed's Head of Domestic Markets, will join the bank as Head of Market Structure. His bio said he had been working as chief of the domestic markets group since June 2018. Before joining the New York Fed, Wuerffel worked at the Chicago Fed, starting there in 1998. Wuerffel’s exit comes amid flux in the New York Fed’s top staff.

When asked about the matter at a news conference after the end of the U.S. central bank's latest policy meeting on Wednesday, Powell declined to say whether Fed officials had begun planning for a possible default. "If there were pressures pushing the funds rate higher the (Fed market desk) would automatically add reserves to deal with that," William English, a Yale School of Management professor, said in a recent interview. As head of the Fed's monetary affairs division at the time, it was English who briefed officials in 2011 on possible options. The approach "appeared acceptable" to Fed officials previously, and was included in a draft statement the central bank had prepared in the event a debt limit compromise was not reached. But I don't want to say what I would and wouldn't do, if we have to actually deal with a catastrophe."

☆ Explainer: Five ways the Fed could calm frazzled markets
▼ + stars: | 2022-10-13 | by ( ) www.reuters.com time to read: +5 min

Here is a look at how the Fed might forestall market dysfunction should it threaten to emerge, listed roughly from most to least likely to be deployed. TALKING THE TALKIn recent days Fed policymakers have acknowledged some liquidity strains in U.S. financial markets - the Treasury market in particular - and the risk that raising interest rates to combat inflation could exacerbate vulnerabilities both domestically and abroad. Still, Fed policymakers would likely be cautious about taking their jawboning up a notch for fear of delivering perhaps too much calm, and undoing the very tightening they need to bring inflation under control. If taken too far, as happened the last time the Fed pursued so-called quantitative tightening in 2019, it can cause market ructions. Slowing that effort could ease strains, but it could also send a confusing signal to markets that may conclude the Fed is backing away from the inflation fight.

☆ Analysis: As markets fret, Fed officials reject idea of rising financial stability risks
▼ + stars: | 2022-10-13 | by ( Michael S. Derby | ) www.reuters.com time to read: +6 min

Tobias Adrian, the International Monetary Fund's monetary and capital markets director,wrote on Tuesday that financial stability risks have risen "substantially." Fed officials have lifted the federal funds rate from near-zero levels in March to the current range of between 3.00% and 3.25%. Financial markets expect the Fed to raise the rate again by three-quarters of a percentage point at its next policy meeting in November. More rate rises are very likely after that, with central bankers penciling in a 4.6% federal funds rate by some point in 2023. Making financial conditions more restrictive is key to how monetary policy operates.

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