NY Fed speeches
“Today, reserves total around $2.9 trillion, as shown on the right side of the stylized balance sheet ( Panel 2 ).”
Williams states optimal reserve supply under uncertainty is unequivocally higher than without uncertainty when no lending facility exists.
“Absent a lending facility, the optimal supply of reserves under uncertainty is unequivocally higher than it is without uncertainty.”
Williams notes Treasury estimates TGA balances could peak around $1.025 trillion by late April, drawing down reserves.
“In fact, the U.S. Treasury recently estimated that TGA balances could peak around $1.025 trillion by late April, amid tax season inflows, likely resulting in a notable drawdown in reserves.”
Williams says high uncertainty can make abundant reserves optimal even when target spread suggests ample reserves region.
“Indeed, if the uncertainty is great enough, the optimal level of reserves can exceed the cutoff for abundant reserves under no uncertainty.”
Williams argues mean spread equaling target does not prove policy optimality under uncertainty.
“Therefore, one cannot judge whether the policy is optimal simply because the mean spread equals its target.”
Williams notes the SRF was used at June quarter end and mid-September as reserve levels fall.
“But as reserve levels fall this is shifting somewhat, with the SRF used at the recent June quarter end and at the mid-September tax date.”
Williams expects Fed will reach ample reserves soon based on sustained repo market pressures.
“Based on recent sustained repo market pressures and other growing signs of reserves moving from abundant to ample, I expect that it will not be long before we reach ample reserves.”