Is the Fed worried about bank reserve liquidity?

Something very interesting showed up in the FOMC November meeting minutes this week

article-image

Julia Tsokur/Shutterstock modified by Blockworks

share


This is a segment from the Forward Guidance newsletter. To read full editions, subscribe.


Something very interesting showed up in the FOMC November meeting minutes this week that had nothing to do with rate cut expectations. 

Hidden deep in the minutes was the following excerpt: 

Essentially, the Fed is considering lowering the award rate on Reverse Repo Facility assets by 5-basis points, which would lower the bottom of the target range of the federal funds rate band. 

Here is what that complex looks like visually: 

One can only speculate as to why the FOMC wants to lower this rate, but there’s a convincing theory:

Given the recent uptake in the Standing Repo Facility that occurred at the end of the previous quarter, paired with FOMC members acknowledging that the clock is ticking on how much longer QT can continue without potential strain showing up in the monetary plumbing system, the FOMC might be trying to get ahead of this by encouraging outflows from the RRP and increasing bank reserves to provide ample liquidity. 

As shown in this chart comparing the $1 million T-bill with the RRP award rate, money market funds are generally alternating between owning the two, depending on which has the higher yield at the time. By decreasing the award rate, T-bills are made more attractive:

As we can see in the current balance of the RRP, there’s still $186 billion of cash that is “stuck” in the RRP. By lowering the award rate, it appears the FOMC is trying to get this money into the broad financial system to ensure liquidity remains ample. This comes in the face of ongoing QT that is getting closer to a potential target that could strain bank reserve levels: 

We will need to wait until the next FOMC meeting in December to confirm if this will indeed be the case. The fact is, though, that by even acknowledging this potential dynamic, the FOMC is signaling that they are becoming increasingly concerned about bank reserve liquidity levels.


Get the news in your inbox. Explore Blockworks newsletters:

Tags

Decoding crypto and the markets. Daily, with Byron Gilliam.

Upcoming Events

Old Billingsgate

Mon - Wed, October 13 - 15, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

recent research

Unlocked by Template (11).png

Research

Union’s technical design brings measured improvements to crosschain interoperability. By combining a consensus-verified hub with novel constructs like state lenses and ZK proofs for client updates, Union achieves an interoperability protocol that is highly performant, trust-minimized, and scalable.

article-image

“Diverse opportunities emerge alongside macroeconomic tailwinds,” zondacrypto CEO says

article-image

Commerce plans transparent, tamper‑resistant data distribution via blockchain for economic metrics

by Blockworks /
article-image

It’s unclear whether the celeb ever knew about the account made using his name

article-image

Sharps Technology raised $400 million in PIPE offering

article-image

Offchain Labs’ Tandem will work exclusively with Succinct on a zkVM

article-image

Fundstrat’s chief investment officer may be the apex bull