Central Banks
Fed Eyes Bank Reserve Risks That Triggered End to QT Last Time
- Gap between bank rates, money-fund yields may affect reserves
- Faster decline in reserves could force central bank to halt QT
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The Federal Reserve looks to be paying closer attention to a potential pinch-point that rankled dollar funding markets almost three years ago and could at some stage become a catalyst for ending early officials’ plans to shrink the US central bank’s expanded balance sheet.
Yields offered by money-market funds -- vehicles that invest in a variety of cash-like instruments ranging from Treasury bills to repurchase agreements, as well as a key facility provided by the Fed itself -- are now “well above” rates offered by banks, monetary authority staff told policy makers at the latest meeting of the Federal Open Market Committee.