MNI: Fed QT Has Room To Run, ON RRP Key Buffer - Williams

The Federal Reserve's balance sheet reduction program is expected to continue despite bank reserves falling faster than expected to around USD3 trillion, New York Fed President John Williams said Thursday.

The roughly USD2 trillion deposited in the Fed's overnight reverse repo facility will act as a buffer as demand for reserves fluctuate, he said.

"ON RRP is the key," he told reporters after an appearance at the Fixed Income Analysts Society in New York. "We could see this year pretty big shifts in bill supply and in the Treasury General Account, and I do think ON RRP is a bit of a shock absorber to that."

Usage of the facility remains elevated, but "we’re seeing price sensitivity," he said. As repo rates move higher, investors are expected to move out of the ON RRP facility, he said. "It’s a process that’s going to take time. So I’m not so worried about reserves coming down and ON RRP staying where it is."