Wrightson on Potential Path for Tapering, Reverse Repo-Op Limits

Wrightson: "Barring a major accident, the Fed is likely to initiate the tapering process at its November 3 meeting" .. "while a majority of FOMC members currently anticipated that the tapering process should be wrapped up sometime around the middle of next year. That would be consistent with the conventional-wisdom expectation of $15 billion cutbacks each month starting in November. The Fed could achieve that end in a variety of ways, but the market impact of each would be roughly the same given the overall contours laid out by the Chair."

• Otherwise, Wrightson said the biggest surprise was the doubling of the counterparty limit on reverse repo operations from $80B to $160B/day that "should have an immediate impact on repo market conditions."
• "In the short turn, the increase in the counterparty limit will only have a significant impact on GSE activity, as the major money fund groups all had a significant degree of flexibility left in their RRP usage as of August 31. However, RRP volumes could spike in October due to debt ceiling constraints, and yesterday's decision will make it easier for the money fund industry to accommodate large, short-term inflows."