Max is back on top: Here’s what’s worth streaming in February 2024
Investors are eager to hear more on Wednesday about when the Federal Reserve might pivot to lower interest rates. But that won’t be the only focus after the central bank’s two-day policy meeting. Another big concern on Wall Street centers on what plans the Fed has for its roughly $7.7 trillion balance sheet, especially if its size keeps rapidly shrinking and puts the financial plumbing of markets at risk.
To stave off potential plumbing issues that could affect the flows of credit and capital, John Canavan, a lead analyst at Oxford Economics, said Monday that he thinks the Fed will reduce how quickly its balance sheet shrinks in the second quarter, and for the unwinding to end in the second half of 2024.
The Fed has been allowing $60 billion of Treasury securities and up to $35 billion in agency mortgage-backed securities roll off its balance sheet each month. That has resulted in a balance sheet that is $1.3 trillion smaller than its record size of nearly $9 trillion in the wake of the pandemic.
Dallas Fed President Lorie Logan seized Wall Street’s attention in early January when she said the Fed should slow its balance-sheet shrinkage when overnight reverse repo balances fall to a low level.
That left many in markets to fixate on when a “low level” might be achieved, while the central bank also keeps “ample” reserves in the system to keep it functioning smoothly. Fed officials have indicated a desire to avoid a repeat of the September 2019 repo crisis, when overnight lending rates surged to a peak of 10% by some estimates.
