On September 20, Barclays believed that the Federal Reserve had indicated that it could reduce its balance sheet while lowering interest rates, but for risk management reasons, it recommended ending the reduction in balance sheet early.
Barclays still expects the Fed to end quantitative tightening in December, with the Federal Open Market Committee (FOMC) to announce it in November.
“In 2019, reserve scarcity exacerbated already tight conditions in the repo market, driving funding rates sharply higher and causing significant disruptions to the Treasury market,” Barclays strategist Joseph Abate wrote in a note to clients. “We believe this outweighs the risks of maintaining reserves at levels slightly above necessary.”
