New York Fed official gives reference for measuring market liquidity

On May 9, Roberto Perli, the official in charge of implementing the Federal Reserve's monetary policy, said that the Federal Reserve announced a week ago that it will slow the pace of its balance sheet reduction, which represents an important and prudent step in the Fed's management of this process. This process faces many uncertainties about how far the Fed can go without putting pressure on the market. In his speech, Perli said that the final size of the Fed's balance sheet is still unknown. He also provided some guidance on how the Fed can watch for signs of liquidity tightening in the market. When there is a liquidity crunch, it needs to end what is commonly referred to as quantitative tightening (QT). Mr. Perli said he was looking at "domestic bank activity on federal funds, timing of interbank payments, day overdrafts, share of repo transactions at or above reserve balance rates".