Fed meeting notes: Short-term funding markets tighten, reserves approach adequate levels

The Federal Reserve's October meeting notes showed that conditions in the US short-term funding market tightened significantly during the interlude, but remained orderly. Towards the end of the interlude, the spread between the effective federal funds rate and the reserve balance rate narrowed to the narrowest level since the Fed began to shrink its balance sheet in 2022. The guaranteed overnight funding rate broke through the minimum bid rate of the Standing Repo Facility several times, resulting in the use of the tool several times. The average use of the overnight reverse repo tool fell to the lowest level since 2021. These changes together suggest that reserve balances are gradually (downward) approaching the level of adequacy.