Invesco Global Liquidity Monthly

Repo Rates Elevated; December Cut Likely, Further Reductions Depend on Inflation Through Early 2026

Repo rates elevated. General collateral (GC) repurchase agreement (repo) rates remained elevated for most of November and spiked to 4.25% at month-end, more than 30 basis points above the rate on the Federal Reserve (Fed) overnight reverse repo facility (ON RRP).¹ Elevated GC repo rates have primarily been driven by tighter banking reserves and potential year-end balance sheet constraints. As a result, the Fed ON RRP has seen very limited usage while the Fed standing repo facility (SRF) has seen sporadic usage to provide liquidity.¹

The end of the Fed’s quantitative tightening, effective December 1, should stabilize banking system reserves at around $2.9 trillion although there is debate around a reasonable level of “ample” reserves.²

No meeting, no change.  There was no Federal Open Market Committee (FOMC) meeting in November. The range for the effective federal funds rate remained at 3.75% to 4.00% after two consecutive 25 basis point cuts.³

Debate on next move. The market implied probability of a 25-basis point December rate cut rose at the end of November to over 80% from as low as 30%.⁴

Fed easing contingent. The Federal Reserve (Fed) cut rates in October due to the weak labor market, but it may find it difficult to cut further with inflation well above target. We expect inflation to remain above target until mid-2026, making additional easing contingent on a significant deterioration in the labor market or increased recessionary pressures.

US growth mixed. Gross Domestic Product (GDP) and corporate earnings appear strong, but labor market weakness raises concerns about underlying momentum. We expect the US to grow below trend through early 2026, with tariffs and cautious corporate behavior acting as headwinds. Fiscal stimulus and deregulation should support a recovery later in the year.