The two recent U.S. bank collapses and the Federal Reserve's new lending program that was launched to prevent wider financial system fallout may have a knock-on effect on the U.S. central bank's efforts to winnow down its massive balance sheet.
That so-called quantitative tightening is a complement to the rate hikes the Fed has delivered in its battle to curb inflation. Those moves have taken its benchmark overnight interest rate from the near-zero level a year ago to the current targeted 4.50%-4.75% range, withAn overall aim of these efforts is to draw liquidity out of the banking system, and whilehow long this process will play out, economists at Wrightson and elsewhere believe it may take longer now.
"I don't see immediate change to runoff" because bank reserves, joined with the massive Fed reverse repo pool, mean there are plenty of reserves in the financial system, which gives the Fed space to press forward with balance sheet reduction, Tang said.
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