The minutes of the Federal Reserve meeting are coming, and Wall Street is closely watching this detail!

As the debate on when the Federal Reserve will end its current quantitative tightening (QT) policy heats up on Wall Street, strategists are looking forward to more guidance when the Fed releases the latest policy meeting minutes on Wednesday.

While most market observers expect QT to end later this year, the specific timing is still far from certain. This has led to attention on the July meeting minutes, which may also provide clues about the direction of interest rates.

Over the past week, the New York Fed has released a series of research reports on monetary policy implementation and reserve balances, all of which are key topics for the eventual end of QT. Steven Zeng, the US rate strategist at Deutsche Bank, believes that these may be signals that policymakers are nearing the end of the program.

He said, "The release of these reports may be in response to recent discussions about the dynamics of the repurchase market and the need to stop QT, these things don't just come out of nowhere."

Since June 2022, the Fed has been reducing its asset holdings, with the balance sheet shrinking by about $1.7 trillion to $7.2 trillion. In June this year, policymakers lowered the cap on maturing Treasury securities that would not be reinvested from $600 billion to $250 billion per month, partly to alleviate potential pressures on money market rates.

In the past, the Fed has often announced significant new tools related to financing markets in July. For example, in July 2013, the committee discussed the implementation of the overnight reverse repurchase agreement (RRP) tool, which serves as a barometer of excess liquidity in the financial system. In July 2021, they introduced standing repo facilities for domestic and foreign firms.

This time, market participants are closely watching for any updates on bank reserve balances. Policymakers have indicated that they still believe reserve levels are sufficient, but whether this situation can be sustained if QT continues will be a question. This month, the Fed's reverse repo usage fell below $300 billion, and overnight repo rates have remained elevated outside typical mid-month and month-end periods, indicating that major dealers are struggling to cope with such a large supply of Treasuries.

Gennadiy Goldberg, the head of US rate strategy at TD Securities, said: "This suggests that the Fed is more concerned about reserves than in recent months, which means we may hear discussions about appropriate reserve levels at the upcoming FOMC meeting. This also indicates that time is running out for QT."

Even with reserves around $3.3 trillion, some in the market are still concerned about liquidity issues in the financial system and how much the Fed's balance sheet can shrink before worrisome cracks appear.

Zeng noted that in addition, Wall Street hopes that policymakers will discuss whether Treasury issuances and record dealer positions have affected their QT plans