The New York Fed has announced it will publish monthly updates of its in-house research on "how much the federal funds rate responds to shifts in reserve supply" (press release here). While Fed officials are currently unconcerned with reserve ampleness as QT has proceeded smoothy so far, this promises to be a useful metric to track to see whether and when the end of Fed balance sheet contraction is nearing.
- Per NY Fed: "This new tool will provide a real-time assessment of the ampleness of reserves in the U.S. banking system to support Federal Reserve balance sheet management and successful monetary policy implementation."
- The initial release will be next Thursday Oct 17 at 1000ET, with subsequent releases monthly thereafter on the 3rd Thursday of the month.
- Of the various metrics that the NY Fed has published on reserve ampleness the past couple of years, this has been one of the most elusive to track as an outsider - it shows the sensitivity of the Fed funds rate to daily changes in aggregate reserves, and to do so, "we use daily confidential data on aggregate balances held by depository institutions, provided by the Federal Reserve Bank of New York".
- This is more clearly explained in an August 2024 blog post that contains this metric (link). "in an ample reserve regime, the fed funds rate can respond to daily shocks, but the response must be small; or, to put it differently, the elasticity of the fed funds rate to reserve shocks must be small, so that active management of the supply of reserves by the Fed is not necessary."
- The only disappointment is that this will only be released monthly - and not daily, despite the fact NY Fed researchers have said they can make "real-time" daily estimates.
It would have had practical application in the past - "our estimates reach a minimum in September 2019, consistent with the interpretation that the money-market stress that occurred at the time was, at least in part, related to reserve scarcity" - as of late September, per SOMA manager Perli, there was no warning signal: "this estimated sensitivity has been, and still is, indistinguishable from zero...that is consistent with an abundant supply of reserves."
