As the Fed's balance sheet reduction nears its end, money markets are showing signs of stress

The Federal Reserve is expected to end its three-year quantitative tightening program this week, easing pressure on banks amid concerns about tight money market funding. Earlier this month, some bank lenders tapped the Federal Reserve's backup financing facility, reaching levels seen during the pandemic. Policymakers will discuss this on Tuesday. Since launching its quantitative tightening program in June 2022, the Fed has allowed over $2 trillion in Treasury bonds and mortgage-backed securities to roll off its balance sheet, tightening financing conditions. Krishna Guha, vice president at Evercore ISI, said: "The market has largely reached a consensus that the Fed will end quantitative tightening this month." Richard Clarida, a former Fed vice chairman and current director of Pacific Investment Management Company (PIMCO), noted: "It will be a close call. But even without a formal resolution, we will have a strong signal that the Fed will end quantitative tightening in December." (Jinshi)