The Fed's Standing Repo Facility (SRF) is facing its first real test. A couple of days ago, Nick from the Wall Street Journal shared this article: https://(x.com)/nicktimiraos/status/1993719021129338979?s=46&t=k6rimWsEbo2D2tXolYcM-A, discussing the issue again. The biggest problem with the SRF is the stigma attached to it—any bank that uses this service will face market skepticism: "Are you having some kind of problem?" This week, influenced by Treasury settlements, repo rates have strengthened again. Year-end balance sheet cleanup is approaching, which will tighten the funding market. The Fed is about to end QT (quantitative tightening). But if banks are unwilling to use the SRF for supplemental funding when needed, the Fed's interest rate ceiling could face a breach. This ties back to the discussion in the tweet on the 19th about the high likelihood of the Fed restarting balance sheet expansion in the future. As the government resumes normal Treasury General Account (TGA) spending and the Fed ends QT in early December, these measures alone won't be enough to bring bank reserves back to the median level of the past three years (there’s still a gap of over $100-200 billion). At that point, to restore liquidity to normal levels and avoid further shocks, the Fed will need to restart bond purchases and expand its balance sheet to provide support. The exact timing is still uncertain—whether the announcement will come during the December FOMC meeting or be pushed to Q1 next year—but restarting bond purchases is highly likely. This post is sponsored by meme trading tool http://(xxyy.io) ｜ Fast trades, rich features, monitor on-chain wallets with @useXXYYio