FOMC minutes show that the Fed is concerned about the risk of cash shortages in the banking system

Source: Yellow Original Title: FOMC Minutes Show the Fed Is Concerned About Cash Shortage Risks in the Banking System

Original Link: https://yellow.com/es/news/actas-del-fomc-muestran-que-la-fed-está-preocupada-por-el-riesgo-de-escasez-de-efectivo-en-el-sistema-bancario The Federal Reserve’s December meeting minutes revealed growing concern over whether the financial system has enough cash to operate smoothly.

The minutes, published on December 30, showed that policymakers are increasingly focusing on the degree of stress in short-term funding markets rather than interest rate policy.

Officials warned that banking system reserves had fallen to “broad” levels where small changes in demand could strain liquidity.

The Federal Open Market Committee cut rates by 25 basis points at its December 9-10 meeting, setting the target range at 3.50%-3.75%.

What happened

Reserve balances declined to approximately $2.9 trillion.

This represents a drop of $500 billion compared to June 2022 levels, when the Fed began reducing its balance sheet.

The minutes cite elevated rates in the overnight repo market, widening spreads between market rates and Fed-administered rates, and increased use of the permanent repo facility.

Officials noted that these pressures were increasing faster than during the 2017-19 balance sheet reduction.

The Fed will begin purchasing short-term Treasury securities to maintain adequate reserves.

Survey respondents expect approximately $220 billion in purchases during the first year.

Officials also discussed removing the limit on the use of the permanent repo facility and clarifying that it represents normal operations rather than emergency intervention.

Seasonal factors, including tax payment flows into Treasury accounts, could drain reserves sharply at the beginning of 2026 without intervention.

Why it matters

Cryptocurrency markets remain sensitive to Federal Reserve liquidity conditions and monetary policy signals.

Treasury bond purchases inject liquidity into the financial system, potentially supporting risk asset appetite, including digital currencies.

The next FOMC meeting will take place on January 27-28, 2026.

CME Group’s FedWatch tool shows that traders assign an 85.1% probability that rates will remain unchanged, versus a 14.9% chance of a quarter-point cut.