Powell Seemed Calm This Week About Banks And The Current Toolkit (2/2)

Chair Powell at Wednesday’s FOMC postmeeting press conference sounded calm about both the banking sector (“broadly improved since early March”) and the current configuration of policy tools.

• Powell and the FOMC had an early look at the Senior Loan Officer Survey due Monday at 1400ET; it's expected to show a further tightening of lending conditions but perhaps not enough to panic the Fed just yet given they followed through with a 25bp hike this week.
• With emergency lending pulling back (see previous note at 1412ET), reserves have too in tandem (-$215B the past 4 weeks).
• This puts some focus back on the high usage ($2.3T) of the overnight reverse repo facility, whose high takeup (with its 5.05% yield) means QT is draining bank reserves at a faster-than-expected clip.
• MNI’s Policy Team reported last month that no changes are expected to either QT parameters or the reverse repo facility - the Fed views ON RRP as serving its intended purpose and expects it to eventually shrink naturally as banks raise deposit rates and supply of other short-term investments such as Treasury bills increases. (MNI POLICY: Fed Resists Pressure To Retool QT, Reverse Repo, Apr 17)
• Powell said this week that the facility was serving its purpose “very well”, and it looks like no changes are imminent, either to ON RRP’s design or to the rates on offer.

Source: Federal Reserve, MNI, as of May 4