Federal Reserve’s Balance Sheet Runoff Tightens Repo Market, Signaling New Tools for Interest Rate Control

The Federal Reserve’s ongoing balance sheet runoff is causing increasing strain on the repo market. Roberto Perli, managing the System Open Market Account at the New York Fed, highlights this growing liquidity challenge. As the central bank unwinds its massive securities holdings, funding costs are rising in overnight markets. This pressure necessitates increased reliance on tools like the Standing Repo Facility (SRF) to manage short-term interest rates.