FOMC Minutes Suggest Limited Reserve Scarcity Concerns

Once again, the Fed has signalled that while it is aware of the potential for Treasury cash rebuild to drain reserves to scarce levels, it is largely unconcerned - from the June meeting minutes: "The staff assessed that the replenishment of the TGA and the ongoing balance sheet runoff, among other factors, were likely to subtract from reserves more than the decline in ON RRP participation would add to them. On net, the staff judged that reserves at the end of the year were likely to remain abundant. Uncertainty surrounding the outlooks for both reserves and ON RRP participation was substantial."

• In fact, "a number" of FOMC participants "observed that the resolution of the federal government debt limit had removed one source of significant uncertainty for the economic outlook", implying the debt ceiling resolution is a reason to lean toward more rather than less tightening.
• Chair Powell showed little concern about reserve scarcity at the June FOMC press conference, echoing the staff assessment (“we don't think reserves are likely to become scarce in the near term or even over the course of the year”) and reiterated the same sentiments before Congress.
• As we've noted before, the coast is clear for the summer: reserves at end-August will still likely be at or above the upper end of what is widely considered the "scarcity" threshold of $2.8-2.9B. It gets slightly murkier into September and into the fall however (more on this in our Treasury Deep Dive last month.).