FED
The New York Fed's monthly release of its Reserve Demand Elasticity metric shows little sign of reserve scarcity. Per the NY Fed: "the elasticity of the federal funds rate to reserve changes is very small and statistically indistinguishable from zero. The estimate suggests that reserves remain abundant."
- Recall that this is calculated as the the elasticity of the Fed funds rate to the supply of reserves: the figures show "by how many basis points the spread between the
federal funds and IORB rates would move for an increase in aggregate reserves equal to 1 percent of banks' total assets." - The trend since mid-September has been away from higher elasticities, creeping back into negative territory which is more consistent with scarce reserves (as borrowers on the Fed funds market are willing to pay higher rates). But overall this is unchanged since early 2021, and as the NY Fed points out, is statistically indistinguishable from zero.
- As NY Fed SOMA chief Perli put it earlier this month in an update on funding market developments, "I want to make clear that there is considerable evidence that reserve supply remains abundant - quarter-end pressures do not appear to be induced by a scarcity of reserves".
- In other words, there is no signal from recent funding market pressures that the Federal Reserve should be considering an imminent end to QT. However, the NY Fed is taking note of increased repo rate volatility at quarter-end.
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