According to BlockBeats, on July 3, data from the Federal Reserve Bank of New York showed that the secured overnight financing rate (SOFR) rose to 5.4% on Monday, the same as the six-year high set on January 2. This increase indicates that liquidity is tight and overnight lending is restricted. This market dynamic last appeared in September 2019, after which the Federal Reserve injected liquidity into the repo market.
David Brickell, an executive at Toronto-based crypto platform FRNT Financial, said the situation is something the market needs to worry about in the short term. Some funding pressures may emerge after the end of the second quarter. Eventually the Fed needs to end quantitative tightening, or balance sheet contraction, and restart liquidity injections similar to quantitative easing. Without the Fed's liquidity, the financial system cannot digest this level of debt. Ultimately, the Fed will quickly return to balance sheet expansion mode as the last liquidity provider.
