Fitch: trillions of dollars to evaporate from US banking system ‎due to quantitative tightening

Fitch Agency revealed that it expects the Federal Reserve’s quantitative tightening measures to cause trillions of dollars to vanish from the banking system by the end of this year, and to significantly weaken liquidity in the US commercial banking system.

According to a report by the credit rating agency issued yesterday, Friday, bank liquidity indicators are still strong, but its basic expectations indicate a significant decline in reserves, as reported by “CNBC”.

Fitch’s expectations indicate a decline in reserves at a level ranging between $900 billion and $2.5 trillion by the end of this year.

The agency also indicated the possibility of accelerating that process in the event of increased use of the Fed’s reverse repurchase facility, according to which the US Central Bank sells securities to repurchase them at a later time at a higher price, which leads to the temporary absorption of cash from financial institutions.

In addition to raising interest rates, quantitative tightening is another way the Fed uses to slow down the economy in order to curb inflation.

This method aims to absorb excess liquidity in the economy by reducing the federal budget

And Fitch stressed the strength of liquidity in the banking system now, with lenders benefiting from quantitative easing policies, according to which the Fed bought large quantities of securities to support the economy.

However, fears of a credit crisis have been increasing since the collapse of the SVB last month.