The Treasury Department and the Fed have drained $150 billion in market liquidity since the debt ceiling deal

Market liquidity has fallen by $150 billion since Congress suspended the debt ceiling earlier this month, according to institutional brokerage and advisory firm Strategas.

But the money to buy those T-bills comes out of financial markets, and Strategas said the Fed’s reverse repurchase program — which acts like short-term loans — isn’t offsetting the loss of liquidity from the auctions.

Draining liquidity from the system could also lead to more bank failures, he warned, adding that he expects that risk will eventually pressure the Fed to slow down its quantitative tightening. 

Analysts at Deutsche Bank estimated in a note earlier this month that $1.3 trillion in T-bills will be issued over the remainder of 2023, bringing the total for the full year to about $1.6 trillion.

Treasury and Fed Have Drained $150 Billion in Market Liquidity Since Debt Deal (