VRIG - Keeping An Eye On Liquidity As Risks Converge

2024-02-15 23:50:00 ET

Summary

• The Fed’s close monitoring and well-signaled tapering of QT should prevent disruptions to the short-term funding markets - despite converging risks.
• Declining cash reserves across the US financial system have some market observers predicting a liquidity crunch in the funding markets. We disagree.
• The RRP is a useful tool of last resort when short-term funding alternatives are in short supply. Only a year ago, RRP reserves ballooned to roughly $2.5 trillion.

By AJ Rivers, CFA, FRM, CAIA and Lucas Krupa

The Fed’s close monitoring and well-signaled tapering of QT should prevent disruptions to the short-term funding markets - despite converging risks. ...

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