Wrightson: The Fed may end the balance sheet reduction this week.

On October 27, analysts from the research firm Wrightson predicted that the Fed might be ready to announce an end to the balance sheet reduction this week. Recent movements in the overnight lending market indicate that financing conditions have tightened, and bank reserves have fallen to levels considered close to equilibrium. The Wrightson team stated that any action taken by the Fed this week would be a cautious move to avoid putting too much pressure on the funding markets. They noted, “Even if the Fed believes that the supply of reserves is still quite ample, we suspect that the FOMC will not ignore the warning signs that have repeatedly appeared in the federal funds rate in recent weeks.” (Jin10)