The Federal Reserve is expected to take additional measures to address ongoing pressures within funding markets, according to JPMorgan Chase & Co strategists. These pressures are anticipated to persist even after the central bank concludes its balance-sheet unwinding, a process that is expected to conclude this week.
Many Wall Street banks, including JPMorgan, widely predict that the Fed will halt the reduction of its substantial $US6.6 trillion portfolio, which comprises Treasuries and mortgage-backed securities. This process is known as quantitative tightening, and an end to it is expected this month. However, JPMorgan strategists, including Jay Barry and Teresa Ho, foresee continued volatility surrounding critical payment periods.
According to a note to clients issued on Tuesday (Wednesday AEDT) by the JPMorgan strategists, the imminent cessation of quantitative tightening will prevent further liquidity drainage from the system. The note also stated, “Thus, we think the Fed may follow a similar course of action taken back in September 2019.”
In September 2019, the Fed injected half a trillion dollars into the financial system in response to rapidly escalating short-term interest rates.
