Bank of America: Risks of Fed shrinking its balance sheet in October rise

Bank of America stated that the risk of the Federal Reserve shrinking its balance sheet in October has increased. Economists at the research firm Wrightson ICAP noted that signs of funding pressure in the repo market could prompt the Fed to announce at next week's interest rate decision that it will no longer reduce its bond holdings. Fed Chairman Powell hinted in his speech earlier this month that he was awaiting the right time to end the balance sheet reduction, and last week's slight volatility in the repo market may serve as a key signal. The firm also expects the Fed to begin purchasing US Treasuries to offset maturing mortgage bonds, thereby maintaining a stable overall balance sheet size. Overall, as the Fed shifts to a neutral policy stance, the supply of short-term Treasury bonds in the market may decrease by approximately $20 billion per month. (Jinshi)