Fed Likely to Keep Shrinking Balance Sheet While Liquidity Drain Persists
- Reverse repo use shrinks and cash shifts to bank reserves
- Liquidity discussion may be part of FOMC minutes due Wednesday
The Marriner S. Eccles Federal Reserve Board Building in Washington, DC.
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While a key Federal Reserve liquidity facility is running low, market analysts say the central bank likely will keep shrinking its balance sheet.
Usage of the Fed’s overnight reverse repurchase agreement facility or RRP — where eligible counterparties can park cash to earn a market rate — briefly dropped below $500 billion last week, continuing a months-long decline.