JPMorgan Chase and Bank of America Issue Joint Warning: Fed Set to End Balance Sheet Reduction

October 24th. Strategists from JPMorgan Chase and Bank of America anticipate that the Federal Reserve will cease the reduction of its nearly $6.6 trillion balance sheet this month, bringing an end to this liquidity draining operation that has been ongoing for more than two years. Both banks have brought forward the timing of the Fed's quantitative tightening exit due to the recent increases in borrowing costs in the U.S. dollar funding market. They had previously predicted that the balance sheet reduction, which started in June 2022, would conclude in December or early next year. "The current or higher level of money markets should convey to the Federal Reserve that reserves are no longer 'abundant'," wrote Bank of America's Mark Cabana and Katie Craig in a report on Thursday. They pointed out that elevated repo rates and funding pressures suggest that the system is gradually approaching a reserve scarcity situation. At JPMorgan Chase, strategists led by Teresa Ho stated that the funding conditions this week led them to advance their timing. With the Federal Reserve's reverse repo tool funds depleted, the market has been operating "with more friction." (FXStreet)