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Waller: Slow Pace Of Taper Sometime This Year, No Reason For O/N RRP To Have Anything In It

FED
[paraphrasing Waller's Brookings Q&A]
  • Waller was watching RRP in 2021 and interrupted it at the time as meaning there was $2tn of liquidity that wasn’t needed. We’ve pulled out circa $1.5tn and everything is fine. If you look back to Jan’19, reserves to nominal GDP were about 8%. Maybe need 10-11% as a good approximate end point. There’s no reason for O/N RRP to have anything in it, it was originally there to put a floor to the Fed Funds rate.
  • Slowing the pace of taper sometime this year is a reasonable timeline to think about. It’s been coming close to two years since we first announced tapering and it made sense then that sometime in 2024 you'd start thinking about tapering. All in favour of MBS to continue at runoff pace, but we can start tapering Tsys.
  • Everybody likes to go back to 2019 and say we didn't have enough reserves. We now have a standing repo facility that we didn't have then. If we see reserves get tighter and tighter, and a lot of activity for the standing repo facility then that's a good signal that we're getting to that point.
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