Fed to withdraw more liquidity than expected amid ongoing funding calm

Bloomberg

The Federal Reserve Bank of New York will shrink its repurchase-agreement operations more than analysts expected, a sign officials are comfortable removing liquidity without upending funding markets.
The central bank announced a new schedule for both overnight and 14-day term repo operations through March 12. Starting this week, the term offerings will drop by $5 billion, to a maximum of $25 billion, and those starting from March 3 will shrink again, to a maximum of $20 billion. The bank’s daily overnight operations, meanwhile, will drop by $20 billion, to a limit of $100 billion.
This marks the second straight month the Fed is reducing liquidity injections. It said in mid-January that it would reduce term operations by $5 billion starting in February. These operations have been oversubscribed this month, but analysts say the demand from dealers hasn’t indicated renewed stress in funding markets, or concern about bank reserves. Instead, the strong bidding is seen as simply underscoring that the rates dealers can get in these operations are lower than prevailing market rates.
“This decrease is a bit faster than expected,” said Gennadiy Goldberg, a senior US rates strategist at TD Securities. “Given the functioning of the money markets recently, they’re probably feeling a bit more confident they can take away some of the repo support more quickly without market disruptions.”
The newly scheduled offerings will provide liquidity through March 26. The Fed has been conducting repos and Treasury-bill purchases in a bid to keep control of short-term rates and bolster bank reserves.
Fed Chairman Jerome Powell reiterated in congressional testimonylast week that the central bank stands ready to adjust the operations as conditions warrant