Fed’s Reverse Repo Facility Plunges to $28.8B—Lowest Since April 2021 Amid Market Shifts

The Federal Reserve’s reverse repo facility just hit a four-year low—$28.8 billion. That’s right, the financial plumbing’s looking a little rusty.

What’s draining the liquidity? Banks are finally waking up to better yields elsewhere (or just remembered money exists outside the Fed’s basement).

Meanwhile, crypto markets are quietly licking their chops—less Fed juice could mean more volatility… and opportunities. Just saying.

Funny how 'risk-free' rates become less appealing when real assets start flexing. Maybe the Fed should try offering NFTs next.

Fed may tap into reserves as RRP dries up

Wall Street’s been watching these moves closely. When the reverse repo pool dries up, the next drain usually hits bank reserves, which are more critical than they sound. They’re the LAYER of protection keeping markets functioning.

Without enough of them, the Fed doesn’t have much wiggle room left in its quantitative tightening. Right now, reserves are sitting around $3.3 trillion, so it’s not panic time yet. But it’s getting closer.

Christopher Waller, a current Fed Governor and one of the names President Donald TRUMP is considering as the next Fed chair, said the system could handle reserves dropping as low as $2.7 trillion. That might still be safe, but if the cash outflow continues, it won’t take long to test that floor.

While the liquidity drains out, David Zervos, Chief Market Strategist at Jefferies, is making headlines of his own. On Thursday, Zervos doubled down on his call for a 0.5% rate cut, something he’s been pushing for during the past three Fed meetings.

In a CNBC interview, he said, “I’m still absolutely there,” even after July’s Producer Price Index showed inflation pressures building again. “I don’t see any reason why this [PPI] number changes that view.”

Zervos says the Fed should act now if it wants to avoid a labor market slowdown and argues a cut could help add a million jobs. He’s not alone. Marc Sumerlin, another economist being floated as a potential Powell replacement, also supports a half-point cut, calling the Fed too cautious in its inflation response.

Trump ramps up pressure on the Fed

Trump is already back in the WHITE House, and he’s not being subtle. He’s been hammering Jerome Powell for months and has called on the Federal Open Market Committee to cut rates by 300 basis points—that’s a full 3%. Right now, the federal funds rate is around 4.33%. Zervos isn’t going that far, but he said he could “get to 200” basis points and might go lower depending on how the AI and tech story plays out.

Zervos said if new technology ends up delivering disinflationary pressure through supply-side improvements, there’s a case for going even lower on rates. He also said he’s not bothered by Trump’s regular attacks on the central bank.

“You go into that job fully understanding that you’re involved in the political process,” Zervos said. For him, the goal is simple: “Have the debate be driven by facts and be driven by what is best for achieving the mandates that Congress sets out.”

The list of potential replacements for Powell is no longer short. What started with just three or four names has ballooned to almost a dozen. Zervos and Rick Rieder from BlackRock stand out because they’re not traditional economists, they’re market guys.

Zervos said that’s exactly what the Fed needs: “More market-savvy, more market-competent people involved in monetary policy.”

Don’t just read crypto news. Understand it. Subscribe to our newsletter. It's free.