US Fed QE Needs to Restart Fast

Latest Fed Policy Initiatives

US money market liquidity, as separately measured by SOFR spreads, US banks’ reserves and by the cash holdings of smaller (more vulnerable) US regional banks, appears to be tightening once again. Evidence the chart below which plots the cash assets of smaller banks as a percentage of all banks’ reserves held at the Fed. This figure may be around the average since 2009, but lately it has turned lower and is moving back towards the lows seen during the March 2023 SVB Crisis. On top, SOFR rates more often trade close to or above Fed Funds in a carry-over from their deterioration in late-2024. Banks’ reserves continue to hover at or below the US$3.2 trillion threshold that we estimate are minimum operating levels.