Liquidity Tightens in US Financial System as Bank Reserves Fall Below Fed's Comfortable Level

Liquidity in the US financial system is showing signs of tightening, with bank reserves falling to approximately $2.9 trillion, which is below the Federal Reserve's 'Lowest Comfortable Level of Reserves' (LCLoR) of $3 trillion. Additionally, overnight funding has become more restrictive, as the overnight collateralized borrowing rate (SOFR) has recently traded 7-10 basis points above the effective Fed Funds rate, signaling potential funding pressure.