The ongoing outflow of funds from the Fed’s reverse repo facility has completely offset the downward pressure on bank reserves from quantitative tightening (QT), suggesting that the Fed could continue to let its asset holdings run down for longer than previously thought. That said, with expectations for a longer QT potentially contributing to the upward pressure on long-term Treasury yields, we still wouldn’t be surprised if QT was once again brought to a premature end when rate cuts begin next year.
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