LESS LENDING

The Fed’s ongoing policy of Quantitative Tightening has reduced the Fed’s balance sheet from $8.5 trillion to $6.8 trillion. This decline in assets has necessarily resulted in reduced liabilities in the form of reverse repurchase agreements (RRP) and bank reserves, and this has pushed up short-term rates. Through 2022, the SOFR rate (which replaced LIBOR) was trivially below the RRP rate, it’s now slightly above. QT ends in early 2025.