Wrightson: The Fed may end its balance sheet reduction this week

Analysts at the research firm Wrightson predict that the Federal Reserve may be ready to announce the end of its balance sheet reduction this week. Recent movements in the overnight lending market suggest that financing conditions have tightened, with bank reserves falling close to levels considered equilibrium. The Wrightson team suggests that any Fed action this week would be a cautious move to avoid excessive pressure on funding markets. They note, "Even if the Fed believes that the supply of reserves remains quite ample, we doubt the FOMC will ignore the repeated warning signals in the federal funds rate in recent weeks." (Jinshi)