The Federal Reserve Bank of Cleveland published an Economic Commentary assessing how large a reserve “buffer” the Federal Reserve may need to remain in an ample-reserves framework as quantitative tightening continues. Economist Joe Haubrich finds the buffer above the point where reserves become scarce could be relatively small, while warning that uncertainty across methods means the ongoing balance sheet reduction warrants close monitoring. Other researchers’ estimates place the reserve level at which conditions turn “scarce” somewhere between USD 900 billion and USD 3.8 trillion. Using an inventory-theory approach and evidence on reserve demand since December 2015, Haubrich estimates an optimal buffer of about USD 90 billion to USD 130 billion, though versions of the inventory model that incorporate potential demand shocks produce materially higher buffer estimates of roughly USD 800 billion to USD 860 billion, underscoring uncertainty around how much cushion is needed to avoid upward pressure on the federal funds rate.
Federal Reserve Bank of Cleveland 2025-04-15
Federal Reserve Bank of Cleveland research estimates USD 90–130 billion buffer between ample and scarce bank reserves
The Federal Reserve Bank of Cleveland's Economic Commentary assesses the reserve buffer needed for the Federal Reserve to sustain an ample-reserves framework during quantitative tightening. Economist Joe Haubrich proposes a buffer of USD 90 billion to USD 130 billion, but demand shocks could increase this to USD 800 billion to USD 860 billion. The analysis underscores uncertainty in determining the optimal reserve level to avoid upward pressure on the federal funds rate.