FOMC: Reserves are likely to be the focus in November - Standard Chartered

Analysts at Standard Chartered, point out that the FOMC will need to decide soon whether bank reserves remain abundant or return to scarcity. They expect the Fed to keep rates unchanged on Thursday and a hike in December. 

Key Quotes: 

“The FOMC meeting on 8 November is unlikely be an immediate market mover, but the outcome should prove important down the road. On the agenda are the appropriate reserve management framework and the ultimate steady-state size of the balance sheet. The decisions the Committee makes will have direct implications for global money markets and funding costs, in both developed and emerging markets.”

“We expect the FOMC to leave the fed funds target rate (FFTR) unchanged ahead of an anticipated December hike, and to raise the interest on reserves (IOER) by 5bps less than the FFTR at the December meeting to alleviate upward pressure on the fed funds effective rate (EFFR; a weighted average of rates paid by a panel of banks in the fed funds market).”

“We do not expect the statement to address recent market volatility.”