According to BlockBeats, on September 20, Barclays indicated that the Federal Reserve has shown it can reduce interest rates while simultaneously shrinking its balance sheet. However, for risk management reasons, Barclays recommends ending the balance sheet reduction early.
Barclays still anticipates that the Federal Reserve will conclude its quantitative tightening in December, with an announcement expected from the Federal Open Market Committee (FOMC) in November.
In a report to clients, Barclays strategist Joseph Abate noted that in 2019, the scarcity of reserves exacerbated the already tense repo market, causing a significant rise in financing rates and severely disrupting the U.S. Treasury market. Abate stated, 'We believe this risk outweighs the benefits of maintaining reserves slightly above the necessary level.'
