Core Viewpoint - The tightening conditions in the money market are expected to persist until November, pressuring the Federal Reserve to take action to replenish liquidity before halting balance sheet reduction next month [1] Group 1: Market Conditions - The overnight secured financing rate (SOFR) surged by 18 basis points last Friday, marking the largest single-day volatility since the Fed's rate hike cycle began in March 2020 [1] - Despite a decrease in SOFR on Monday after month-end pressures eased, it remains above the Fed's key policy benchmark rates, including the federal funds rate [1] - Other short-term rates in the overnight repurchase market continue to trade above the Fed's managed rates [1] Group 2: Federal Reserve Actions - The Federal Reserve announced it will stop reducing its holdings of U.S. Treasury securities by December, ending a three-year quantitative tightening effort due to increasing financing pressures [1] - The Fed's internal divisions are evident, as some officials advocate for maintaining a minimal balance sheet while others suggest increasing reserves to keep pace with the banking system and economic growth [5] - Recent data shows bank reserves have fallen to $2.8 trillion, the lowest level since September 2020, indicating a potential need for the Fed to act [5] Group 3: Market Reactions and Predictions - The spread between SOFR and the interest on reserves balance (IORB) reached 32 basis points last Friday, the largest since 2020, indicating significant market pressure [6] - Analysts suggest that the Fed may need to take more aggressive actions, such as purchasing Treasury securities, to alleviate market tensions similar to the actions taken in 2019 [9] - If financing market pressures persist, the possibility of temporary open market operations by the Fed cannot be ruled out [9]