MNI BRIEF: Fed's QT Slowdown Not Yet On Horizon - Perli

The moment when the Federal Reserve will slow down balance sheet runoff is not yet on the horizon, Roberto Perli, manager of the Fed's System Open Market Account, said Tuesday in a speech.

The FOMC has indicated its intent in the past on slowing and stopping balance-sheet runoff when reserve balances are somewhat above the ample region, he said. "We know that the transition from abundant to ample will occur at some point, but we don’t know when."

"All indications are that reserves today remain abundant," Perli said. "We see no clear evidence of stress in either the pricing of overnight interest rates or the usage of backstop facilities." (See: MNI INTERVIEW: Reserve Scarcity Yet To Materialize - Fed Econ)

Perli said the pricing and composition of money-market activity will signal when to adjust QT, in addition to surveys and consulting contacts in the market. The New York Fed will follow spreads of overnight market rates relative to administered rates, the relationship between those spreads and changes in reserve balances, and the composition of borrowers in fed funds and other money markets, he said. Changes in advance demand from FHLB member banks and the distribution of reserve balances will also be watched closely.