Monetary Matters with Jack Farley Joseph Wang: Fed Likely To Have To Expand Balance Sheet To Avoid Losing Control Over Repo Market
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Oct 30, 2025 
Joseph Wang, a former senior trader at the New York Fed and author at FedGuy.com, dives into the Fed's recent decision to halt quantitative tightening. He discusses the stress in the repo market and predicts the need for the Fed to expand its balance sheet to maintain liquidity. Topics include the implications of rising repo demand due to fiscal deficits, potential impacts on mortgage rates from MBS sales, and the balance sheet's role in controlling interest rates. Wang also examines stock market momentum driven by AI and the complexities of Fed independence.
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2019 Repo Shock Shaped Fed Caution
- Wang recalls the September 2019 repo spike as an abrupt, unexpected market event.
- He says that 2019 experience shapes current Fed caution and response design.
Control Of Rates Overrides Quantity Control
- If the Fed prioritizes controlling rates it will lose tight control over balance sheet quantities.
- Wang says persistent repo demand forces central banks to add reserves, ceding quantity control to rate objectives.
Monitor Multiple Liquidity Indicators
- The Fed monitors multiple indicators of reserve scarcity, not just one rate.
- Track repo spreads, sensitivity of fed funds to reserves, intraday liquidity strains, and overdraft usage for early warning.