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‘QE in Another Name’: New Bank Backstop Points to the End of Fed QT

  • Citi strategists analyze impact of Fed’s new funding program
  • Banks have seen deposits leave for higher-yielding substitutes
Light trails from a vehicle in front of the Marriner S. Eccles Federal Reserve building in Washington, DC.

Light trails from a vehicle in front of the Marriner S. Eccles Federal Reserve building in Washington, DC.

Photographer: Stefani Reynolds/Bloomberg
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The Federal Reserve may need to end its quantitative-tightening program early to preserve the amount of bank reserves in the financial system while also maintaining its hawkish signaling on interest rates, according to Citigroup Inc. 

As Citigroup sees it, the Fed’s new Bank Term Funding Program, introduced over the weekend after the collapse of Silicon Valley Bank, will create additional reserves in the financial system to avert funding stress.