Bank Reserves Hit Lowest Levels Since 2020 Amid Fed’s QT 

Bank reserves plummeted by $326 billion in the week ending January 1st, dropping to $2.9 trillion—the lowest level since October 2020. This marks the largest weekly decline since April 2022. Reserves have now declined by $1.3 trillion since their September 2021 peak.  

The Fed estimates that the "ample reserves" needed for smooth financial markets range between $2.8 and $3.4 trillion, with Wall Street strategists suggesting a more comfortable range of $3.0-$3.3 trillion. Meanwhile, the Fed’s ongoing quantitative tightening (QT) policy, shrinking its balance sheet by $60 billion monthly, continues to push reserves lower.  

As reserves approach the lower end of "ample" levels, questions arise about potential market impacts. Could the tightening liquidity challenge financial stability in the months ahead?  

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