FED
On the liabilities side of the Fed balance sheet, reserves rose $21B in the latest week largely due to a drawdown in the Treasury's account at the Fed (TGA). The rise in reserves was restrained by incremental increases in reverse repo facility takeup and currency in circulation.
- Over the past month, though, reserves have dropped $55B - albeit from a high base (reserves in late January were above $3.3T for a two-week period for the first time since August 2024).
- This reserves pullback came as Treasury built up the TGA war chest amid a mid-January corporate tax intake and the reinstatement of the debt limit, while overnight reverse repo and "other" holdings likewise pulled back.
- At $3.28T, reserves are not far below the levels of Q2 2024, and by all accounts the Fed continues to regard this level as "abundant".
- The January FOMC minutes gained significant attention for flagging participants' concern that debt limit dynamics could make it difficult to assess whether the true level of reserves remained ample, as they will rise/fall as the TGA falls/rises over the coming months until the debt limit is resolved ("regarding the potential for significant swings in reserves over coming months related to debt ceiling dynamics, various participants noted that it may be appropriate to consider pausing or slowing balance sheet runoff until the resolution of this event.")
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