Payden & Rygel: Overnight (US) money market rates vs Fed funds target range

Payden & Rygel: Overnight (US) money market rates vs Fed funds target range

20 oktober 2025

Rente Fed

Fed Chair Jerome Powell delivered remarks on the Fed's balance sheet on Tuesday (Oct 14) - a well-timed speech, we say. As Powell outlined, 'since June 2022, [the Fed] has reduced the size of [its] balance sheet by $2.2 trillion - from 35% to just under 22% of GDP', the so-called QT process. But Powell admitted the Fed doesn't want to push things too far, as shrinking Fed assets also reduces a key liability: bank reserves.

Remember, the Fed's goal is to return reserves to an 'ample' level. Market pricing suggests we may already have breached that level. The Secured Overnight Financing Rate (SOFR), spiked above the upper bound of the Fed's target range last week (Oct 13-17). As a result, 20 institutions borrowed from the Fed's Standing Repo Facility (SRF), the tool designed to enforce the ceiling on the Fed's target range, as banks can borrow from the SRF at the fed funds upper bound rate.

Is there a shortage of reserves? Are Treasury security settlements clogging dealer balance sheets? Are there other credit issues in the banking system? For policymakers, out-of-bounds overnight rates warn of a similar funding market stress to that in September 2019. Consequently the Fed could soon end QT and start buying T-bills to ensure bank reserves remain 'ample'.

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