They could but they won't. I maybe didn't make it clear enough in the post, but all of this is about spreads around the policy rate level. The overall level will be set by the FOMC's decision for the path of the Fed Funds rate. They won't want to increase the spread of the SRF rate over Fed Funds, because that would amount to losing control over overnight rates. Instead I think it will be a balancing act between QT and the path for rates, and as we have seen this week, reacting to other events as they happen.
Ah. I see. So there comes a point where QT becomes constrained by the Fed's desire to keep the policy rate lower. But it isn't constrained in this way yet.
Once QT comes up against the SRF, can the Fed just increase the SRF rate to be able to continue on with QT?
They could but they won't. I maybe didn't make it clear enough in the post, but all of this is about spreads around the policy rate level. The overall level will be set by the FOMC's decision for the path of the Fed Funds rate. They won't want to increase the spread of the SRF rate over Fed Funds, because that would amount to losing control over overnight rates. Instead I think it will be a balancing act between QT and the path for rates, and as we have seen this week, reacting to other events as they happen.
Ah. I see. So there comes a point where QT becomes constrained by the Fed's desire to keep the policy rate lower. But it isn't constrained in this way yet.