🇺🇸 THE FED HAS REACHED A CRITICAL UNDISCUSSED THRESHOLD 🇺🇸
Starting December 1st, the Federal Reserve will end Quantitative Tightening (QT), freezing its balance sheet at $6.57 trillion after draining $2.39 trillion from the financial system, the largest liquidity reduction in central banking history.
However, this is not a simple return to normalcy but a profound transformation.
The Overnight Reverse Repo facility, which had absorbed up to $2.5 trillion in excess liquidity, has almost disappeared, eliminating the buffer that protected the system over the last three years.
Bank reserves have fallen to $3 trillion, about 10% of GDP, a threshold beyond which stability becomes fragile.
In October, the Secured Overnight Financing Rate exceeded 4.25%, above the Fed's target threshold, and the Standing Repo Facility was used for $18.5 billion in a single day, becoming essential for daily operations.
The Fed has now firmly integrated into the Treasury markets, ready every night to convert government securities into reserves without limits, shifting from a lender of last resort to a continuity lender.
The FOMC Committee, which will meet on December 10, is preparing for a potential rate cut with CPI at 3%, above target, but with partial data due to the recent government shutdown.
Public debt exceeds $38 trillion with annual interest costs above $1 trillion.
This marks the birth of a new monetary regime: the Era of the Standing Repo Facility has begun, with impacts destined to last for decades.
#FOMCWatch #Fed #usa