Federal Reserve Faces Increased Risk in October Balance Sheet Reduction

According to BlockBeats, the Bank of America has indicated a rising risk associated with the Federal Reserve's balance sheet reduction in October. Economists from the research firm Wrightson ICAP have noted signs of funding pressure in the repo market, which may lead the Federal Reserve to announce a halt in reducing its holdings at next week's interest rate decision. Earlier this month, Federal Reserve Chair Jerome Powell hinted at waiting for the right moment to end the balance sheet reduction, with last week's slight fluctuations in the repo market potentially serving as a critical signal. The institution also anticipates that the Federal Reserve will begin purchasing U.S. Treasury securities to offset maturing mortgage-backed securities, thereby maintaining the overall balance sheet size. In summary, as the Federal Reserve shifts to a neutral policy stance, the supply of short-term Treasury securities in the market may decrease by approximately $20 billion each month.