Federal Reserve to trim treasury, mortgage holdings despite rate cut prospects

News Image

MG News | February 16, 2024 at 10:56 AM GMT+05:00

0:00

February 16, 2024 (MLN): The US Federal Reserve is likely to continue to run down its holdings of US Treasury (UST) and mortgage-backed securities (MBS) until end-2024, despite the prospect of interest rate cuts from June, Fitch Ratings says in its latest economics dashboard.

Sharply falling use of the Fed’s overnight reverse repo facility (RRP) is keeping bank reserves higher than expected as the Fed reduces its balance sheet.

The Fed intends to slow and then end quantitative tightening when bank reserves are ‘somewhat’ above the level judged to be consistent with ‘ample’ reserve balances.

The challenge for the Fed is that this ‘ample’ minimum reserves floor is unknown. The money market stress in September 2019 revealed the threshold was much higher than previously thought.

There are a few concerns that reserves are close to the threshold now, with overnight interest rates trading in the lower half of the Fed’s target range.

Bank reserves were $3.4 trillion in January 2024 (12.6% of GDP), compared to $1.4tr (6.7%) in September 2019.

The sharp fall in the RRP from $2.6 trillion in May 2023 to $980 billion in January 2024 has boosted reserves. The RRP drains reserves as counterparties, typically money market funds lend funds directly back to the Fed.

Nevertheless, recent Fed commentary has alluded to a reserves floor of 10%-11% of GDP, or $2.8tr-3tr. This is higher than estimates from around a year ago.

Fitch has constructed a Fed balance-sheet scenario assuming cash demand grows in line with GDP, Treasury deposits (TGA) stay at $865 billion and the RRP declines further to $360 billion by year-end.

This shows that continued falls in Fed securities holdings tapered to $60bn a month from June (from the current limit of $95bn) would leave reserves at $3.2tr by end-2024, somewhat above ample.

Copyright Mettis Link News

Related News

Name Price/Vol %Chg/NChg
KSE100 138,412.25
167.69M
0.32%
447.43
ALLSHR 85,702.96
423.92M
0.15%
131.52
KSE30 42,254.84
82.09M
0.43%
180.24
KMI30 194,109.59
84.37M
0.15%
281.36
KMIALLSHR 56,713.67
217.03M
0.03%
16.37
BKTi 37,831.34
13.04M
1.62%
603.62
OGTi 27,440.63
3.93M
-0.09%
-23.70
Symbol Bid/Ask High/Low
Name Last High/Low Chg/%Chg
BITCOIN FUTURES 118,450.00 119,440.00
118,145.00
155.00
0.13%
BRENT CRUDE 72.82 73.17
71.75
0.31
0.43%
RICHARDS BAY COAL MONTHLY 96.50 0.00
0.00
2.20
2.33%
ROTTERDAM COAL MONTHLY 104.50 104.50
104.50
-0.30
-0.29%
USD RBD PALM OLEIN 998.50 998.50
998.50
0.00
0.00%
CRUDE OIL - WTI 69.55 69.79
68.45
0.34
0.49%
SUGAR #11 WORLD 16.46 16.58
16.37
-0.13
-0.78%

Chart of the Day


Latest News
July 30, 2025 at 05:54 PM GMT+05:00

Pakistan BCI decreased by 1.2 points in July


July 30, 2025 at 05:17 PM GMT+05:00

Pakistan consumer confidence falls to 40.1 points in July


July 30, 2025 at 05:03 PM GMT+05:00

PKR rises by 10 paisa against USD


July 30, 2025 at 04:11 PM GMT+05:00

PSX Closing Bell: You Can’t Always Get What You Want



Top 5 things to watch in this week

Pakistan Stock Movers
Name Last Chg/%Chg
Name Last Chg/%Chg