Bank of America: The risk of the Fed reducing its balance sheet in October is rising.

On October 21, Bank of America stated that the risk of the Fed reducing its balance sheet in October has increased. Economists at research firm Wrightson ICAP pointed out that signs of funding pressure in the repo market may prompt the Fed to announce next week that it will no longer continue to reduce its holdings. Fed Chair Powell hinted in a speech earlier this month that he is waiting for the right time to end balance sheet reduction, and last week's slight fluctuations in the repo market may become a key signal. The firm also expects the Fed to begin purchasing U.S. Treasuries to offset maturing collateralized mortgage obligations, thereby maintaining a stable overall balance sheet size. In summary, as the Fed shifts to a neutral policy stance, the supply of short-term government bonds in the market may decrease by about $20 billion per month. (Jin10)