Fed Reserves Plummet By $326BN Back Under $3 Trilion, Just In Time For Massive Treasury Cash Flood

Back in October, when the repo market started cracking under the weight of the Fed's gradual reduction in Reserves and Reverses, and funding spreads briefly exploded, we quoted BofA STIR expert - and former NY Fed repo guru - Mark Cabana, who said that according to his estimates, the Lowest Comfortable Level of Reserves (or LCLOR) is around $3-3.25 trillion given "(1) bank willingness to compete for large time deposits and (2) reserve / GDP metrics (back in 2019, the repo market locked up once reserves dropped to about 7% of GDP not too far from where they are now)."

We bring this up because in the latest weekly Fed balance sheet update, we find that the amount of Fed reserve balances as of Wednesday, Jan 1, tumbled by a whopping $326 billion - the second biggest drop on record - pushing the total from the comfortable level of $3.218 trillion to $2.892 trillion, the lowest since November 2020.