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FED: QT End-Dates Continue To Be Pushed Back (2/2)

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While takeup of the overnight reverse repo facility - an auxiliary supply of bank reserves - continues to peter out ($68B latest vs $2.3T at the 2023 peak), there appears to still be little to no urgency among Fed officials to slow or stop balance sheet runoff given that reserves remain elevated ($3.26T, around levels we saw as far back as mid-2022).

  • This week, Fed Chair Powell told a congressional committee that reserves were "abundant" and noted that the QT process still has "a ways to go":  "The most recent data and the feel of the markets is definitely that reserves are still abundant. They're about the level they were at when runoff started, because the runoff has really happened out of the overnight [reverse] repo facility... we're going to be looking at conditions in reserve markets and trying to stop a little bit above what we consider ample and we think we're  meaningfully above that. Now we can't put a number on it, because you can't directly know the demand for reserves, other than by observing behavior in  the market and then putting a little bit of a buffer on it. So I can't give  you an exact number, but for now, it's ongoing, and we have a ways to go."
  • And NY Fed President Williams, whose bank operates the SOMA portfolio, on Tuesday repeated previous language that balance sheet runoff is  proceeding "smoothly".
  • Already, analysts had been pushing back their expectations for  the end of QT. For example, last week, Goldman Sachs revised its view that Treasury runoff would conclude at the end of Q1 with balance sheet runoff ending entirely at end-Q2 (with MBS reinvested into Tsys) - they now have pushed that timeline back by one quarter.
  • As of the latest NY Fed survey of primary dealers in December, the median dealer expectation for QT to end is June 2025, with the 25th  percentile respondent seeing April and the 75th percentile seeing August.
  • We would expect expectations for an early 2025 end to QT to continue to be pushed back, maintaining the recent trend - as recently as October 2024, analysts largely saw March 2025 as the end date.
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While takeup of the overnight reverse repo facility - an auxiliary supply of bank reserves - continues to peter out ($68B latest vs $2.3T at the 2023 peak), there appears to still be little to no urgency among Fed officials to slow or stop balance sheet runoff given that reserves remain elevated ($3.26T, around levels we saw as far back as mid-2022).

  • This week, Fed Chair Powell told a congressional committee that reserves were "abundant" and noted that the QT process still has "a ways to go":  "The most recent data and the feel of the markets is definitely that reserves are still abundant. They're about the level they were at when runoff started, because the runoff has really happened out of the overnight [reverse] repo facility... we're going to be looking at conditions in reserve markets and trying to stop a little bit above what we consider ample and we think we're  meaningfully above that. Now we can't put a number on it, because you can't directly know the demand for reserves, other than by observing behavior in  the market and then putting a little bit of a buffer on it. So I can't give  you an exact number, but for now, it's ongoing, and we have a ways to go."
  • And NY Fed President Williams, whose bank operates the SOMA portfolio, on Tuesday repeated previous language that balance sheet runoff is  proceeding "smoothly".
  • Already, analysts had been pushing back their expectations for  the end of QT. For example, last week, Goldman Sachs revised its view that Treasury runoff would conclude at the end of Q1 with balance sheet runoff ending entirely at end-Q2 (with MBS reinvested into Tsys) - they now have pushed that timeline back by one quarter.
  • As of the latest NY Fed survey of primary dealers in December, the median dealer expectation for QT to end is June 2025, with the 25th  percentile respondent seeing April and the 75th percentile seeing August.
  • We would expect expectations for an early 2025 end to QT to continue to be pushed back, maintaining the recent trend - as recently as October 2024, analysts largely saw March 2025 as the end date.
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