MNI BRIEF: Fed's Perli - Don’t Appear Close To Ending QT

A top Federal Reserve Bank of New York staffer said Tuesday that reserves are still above the ample level and don’t appear to be close to the point when the Fed will end its program to roll off assets from its balance sheet.

The FOMC in May 2022 said it intends to stop balance sheet reduction when reserves are somewhat above the ample level. "For now, we don’t appear to be close to that point," said Roberto Perli, the head of the System Open Market Account responsible for implementing Fed monetary policy directions.

"Market intelligence had been indicating clearly for many months that market participants understood well that there is no mechanical link between interest-rate and balance-sheet decisions," he said.

Fed Chair Jay Powell last week said the ongoing balance sheet reduction and the cut in the federal funds rate last week are both part of the process of normalization. (See MNI INTERVIEW: Fed QT Likely To Linger After Rate Cuts Start)

Perli also said market commentary received before last week's FOMC meeting suggested investors would correctly interpret the 50BP cut.

The "intelligence we collected from surveys, written commentaries, and other sources suggested that investors were likely to interpret a 50-basis-point cut exactly for what it was—a recalibration of the FOMC policy toward amore neutral stance that will help maintain the strength of the economy and the labor market while continuing to enable further progress on inflation," he said in prepared remarks for an event at the Deutsche Bundesbank.