MNI BRIEF: QT Proceeding Smoothly, But Signs Of A Shift-NY Fed

The Federal Reserve's balance sheet run-off has proceeded smoothly and reserve supply remains above ample, but there has been incremental signs of a shift in money market conditions, the New York Fed's Deputy SOMA Manager, Julie Remache, said Wednesday, suggesting shifts to QT are coming into focus.

"We are seeing incremental signs of a shift in money market conditions. The distribution of traded repo rates, for example, has moved upward, and repo rate volatility has periodically reemerged around regulatory reporting dates or Treasury settlement dates," she said in prepared remarks. "However, there is no sustained material upward pressure in the federal funds market. As balance sheet reduction continues, we expect to see further declines in ON RRP, and reserve balances will likely begin to decrease at some point." (See MNI: Fed Could Soon Taper QT But Halt Further Off-Ex-Staffers)

In her speech to a Women in Fixed Income Conference, Remache stressed the FOMC will ultimately determine the future evolution of the central bank's balance sheet, including when to slow and when to stop the runoff of the securities portfolio. Chair Powell last week said the Fed plans in-depth talks on balance sheet run-off at its March meeting.