SOMA Manager Perli Unconcerned With Reserve Scarcity As QT Goes "Smoothly"

NY Fed SOMA manager Perli lays out a full-steam-ahead assessment of the current QT regime in a speech today, with balance sheet reduction "proceeding smoothly" with "no significant disruptions to financial or funding markets". That includes the post-debt limit crisis shift away from ON RRP into t-bills, in which "rate control remained flawless".

• While he notes the SOMA desk will carefully monitor conditions, "all indications are that reserves today remain abundant."
• Potentially of interest are the metrics the Desk will use to spot potential scarcity in reserves, including "Spreads of private overnight market rates relative to administered rates; The relationship between those spreads and changes in reserve balances; The composition of borrowers in fed funds and other money markets; Changes in advance demand from FHLB member banks; The distribution of reserve balances."
• As recently as June we'd seen some analysts eyeing reserve scarcity being a concern as soon as Q4 of this year amid the Treasury's post debt-limit cash rebuild, concerns about bank deposit flight, and QT, but that isn't materializing and as Perli notes, the Fed isn't worried about it at this point. Indeed reserves have been remarkably steady above $3T over the past year despite ongoing QT.
• We'll update the state of play in reserves this Friday in our Fed Balance Sheet Tracker update.

Source: Federal Reserve, MNI