Reserves are already down by 40 percent since their peak and are likely to be down by more than half this summer. In my view, asset redemptions should come to an end later in the year, which would provide a sufficient buffer of reserves to meet demand and avoid volatility.
We have gathered information from market contacts and have surveyed banks to assess their demand for reserves. 17 I would want to see a healthy cushion on top of that to avoid unnecessary volatility and ensure that the federal funds rate will be largely insulated from daily swings in factors affecting reserves.