Fed's Big Balance-Sheet Unwind Could Be Coming to an Early End
- Rise in overnight rates suggests cash increasingly scarce
- Guidance Fed supervisors are giving banks is a key question
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The Federal Reserve’s balance sheet may not have that much further to shrink.
An unexpected rise in overnight interest rates is pulling forward a key debate among U.S. central bankers over how much liquidity they should keep in the financial system. The outcome will determine the ultimate size of the balance sheet, which they are slowly winding down, with key implications for U.S. monetary policy.