Treasury’s Debt-Ceiling Maneuvers to Hamper Fed’s Tightening Efforts
- Ceiling constraints alter distribution of Fed’s liabilities
- TGA drop under the limit will neutralize unwind, BofA Says
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The US Treasury’s maneuvering to prolong its borrowing authority and remain under the statutory borrowing limit in 2023 will likely mute the Federal Reserve’s efforts to tightening monetary policy at least in the near term.
When the monetary authority began unwinding its holdings in 2022, concern centered on how fast and at what point reserves would become scarce and financial institutions would be forced to start borrowing in dollar funding markets, ultimately pushing the Fed to halt so-called quantitative tightening.