JPMorgan Chase and Bank of America Issue Joint Warning: Fed Set to End Balance Sheet Reduction
BlockBeats News, October 24th. Strategists from JPMorgan Chase and Bank of America expect the Federal Reserve to halt the reduction of its nearly $6.6 trillion balance sheet this month, bringing an end to this over two-year-long liquidity draining operation. Both banks advanced their timing for the Fed's quantitative tightening exit due to recent increases in the U.S. dollar funding market borrowing costs. They had previously forecasted that the balance sheet reduction, which began in June 2022, would conclude in December or early next year.
"The current or higher level of money markets should signal to the Federal Reserve that reserves are no longer 'abundant'," wrote Bank of America's Mark Cabana and Katie Craig in a report on Thursday. They pointed out that elevated repo rates and funding pressures indicate the system is gradually approaching a reserve scarcity condition.
At JPMorgan Chase, strategists led by Teresa Ho stated that the funding conditions this week prompted them to advance their timing. With the Federal Reserve's reverse repo tool funds running dry, the market has been operating "in more friction." (FXStreet)
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