MNI BRIEF: Fed's Perli Says QT Has 'Plenty of Room' To Run
NY Fed markets chief speaks at Treasury market conference.
The New York Fed's market chief Roberto Perli said Thursday there is "plenty of room" to continue the central bank's QT program as a variety of indicators indicate reserve supply remains abundant.
By looking at a variety of metrics, "it’s hard to conclude anything else other than that, as of today, reserve supply remains abundant. And of course, reserves have not declined, on net, since the runoff process began in June 2022," Perli said in prepared remarks for a NY Fed conference.
But Perli also took note of upward pressure on repo rates as one risk, suggesting reserves are becoming progressively less abundant. One "indicator that I introduced in May is the share of repo transactions that are priced at or above IORB. Unlike the other four indicators, it has increased notably since the spring," he said. (See MNI INTERVIEW: Fed QT Likely To Linger After Rate Cuts Start)
But, "for now, pressures in the repo market don’t appear to be close to the point where they would start affecting the federal funds rate," Perli concluded. "For that reason, I believe there is plenty of room to continue shrinking the SOMA portfolio. Still, in 2018, the repo market arguably served as a leading indicator of pressures developing in the reserves market. There is no guarantee that it will be the same again this time, but my colleagues and I will be monitoring its evolution."