The Fed's balance sheet reduction is nearing its end, and signs of pressure are emerging in the money market.

On October 28, the Fed is expected to end its three-year quantitative tightening phase this week, easing banking pressures amid concerns over overly tight funding in the money markets. Earlier this month, some bank lending institutions tapped into the Federal Reserve's backup financing mechanism, reaching levels seen during the pandemic. Policymakers will discuss this on Tuesday. Since launching the quantitative tightening plan in June 2022, the Fed has allowed over $2 trillion of U.S. Treasuries and mortgage-backed securities to roll off its balance sheet, tightening financing conditions. Krishna Guha, Vice President of Evercore ISI, stated, “The market has essentially reached a consensus that the Fed will end quantitative tightening this month.” Current board member of Pacific Investment Management Company (PIMCO) and former Fed Vice Chair Clarida pointed out, “It will be a very close decision. But even without a formal resolution, we will receive strong signals indicating that the Fed will terminate quantitative tightening in December.” ( Jin10 )