Fed’s Perli says balance sheet drawdown has been smooth

The New York Federal Reserve branch’s Roberto Perli is manager of the Fed’s System Open Market Account SOMA

• its portfolio of bonds, cash and other assets, which currently stand at $6.8 trillion

In effect, Perli manages the implementation of monetary policy.

Comments:

• Fed balance sheet drawdown has been smooth.
• Flags challenge of managing balance sheet cuts amid debt ceiling debate.
• Financial system reserves remain abundant.
• Fed’s reverse repos can likely shrink further.
• Fed may bring back early morning SRF operations at quarter-end.
• Evidence suggests the repo market is normalizing.
• Market liquidity levels remain abundant.

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Background:

• The Fed more than doubled the size of its holdings due to
  efforts to bolster the economy during the COVID-19 pandemic
• Since 2022 the Fed has been allowing Treasury and mortgage bonds
  it owns to expire and not be replaced, which has allowed the
  central bank to trim just over $2 trillion from its holdings
• The Fed is trying to remove just enough liquidity from
  financial markets to allow for normal money market volatility
  and to preserve its strong control over the federal funds rate,
  its chief tool to achieve its monetary policy goals.

This article was written by Eamonn Sheridan at www.forexlive.com.