Eurodollar University You Won’t Believe How Bad the Cash Shortage Just Got
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Oct 27, 2025 Steve Van Meter, a macro commentator and market analyst, dives into the ongoing cash squeeze affecting money markets. He predicts the Federal Reserve will likely cut rates due to labor weaknesses, while discussing the implications of potentially ending Quantitative Tightening (QT). The conversation highlights stresses in credit markets, elevated SOFR rates, and the subtle balancing act the Fed must perform to avoid spooking equity markets. The duo also explores how declining consumer sentiment impacts spending amid rising recession risks.
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Cash Squeeze Forces Fed Policy Shift
- The cash squeeze in money markets is likely to force an end to the Fed's QT and lead to rate cuts.
- Elevated money-market rates and repo usage make balance-sheet runoff politically and practically unsustainable.
Stagger Policy To Avoid Market Panic
- Expect the Fed to cut rates first and delay ending QT to avoid signaling panic.
- Watch subsequent meetings for faster action if initial easing fails to calm plumbing issues.
Plumbing Signals Drive Fed Responses
- Money-market dysfunction (SOFR spikes, repo usage) forces the Fed to act beyond just rhetoric.
- The Fed's only effective tool here is altering reserves or balance-sheet operations.