Fed’s QT Can Continue Despite Repo Market Volatility, RBC Says

While volatility in the market for repurchase agreements at the end of the third quarter has renewed calls for an end to the Federal Reserve’s balance-sheet runoff, broader liquidity still remains abundant, according to RBC Capital Markets.

• Strategists Izaac Brook and Blake Gwinn reiterated the firm’s expectation that quantitative tightening or QT will run until the second half of 2025
• “Repo volatility does mean a higher probability of a sooner end, but broader funding conditions and Fed speak continue to suggest QT has a ways to go,” they wrote
• Recent decline in bank reserves was seasonal and has already begun ...