Happy Sunday and welcome to our weekly flagship editorial.

Quote of the week:
“So, given the rapid decline of the ON RRP, I think it’s appropriate to consider the parameters that will guide a decision to slow the runoff of our assets. In my view, we should slow the pace of runoff as ON RRP balances approach a low level.”
– Lorie Logan, FOMC member at the annual meetings of the International Banking, Economics and Finance Association and the American Economic Association.

The above quote was delivered on Friday in a speech by Dallas Fed president Lorie Logan and it may prove to be the most important quote by a central banker in 2024 so far. Effectively, the quote is a promise that QT is already history as the impact of Fed policy on liquidity / bank reserves will remain neutral to slightly positive from here, which is essentially what we have told clients for a while now. 

This is a substantial move in a dovish direction on the balance sheet policy as the Fed abandoned the “Waller-rule”, which has guided the balance sheet communication- and policy until now. Find out what it means below!

Chart 1: The Waller rule is no more