Wells Fargo Money Market Funds asks, "Why should we care about the Fed normalizing its balance sheet?" in its latest "Portfolio Manager Commentary." They explain, "The majority of Americans probably shouldn't and won't care about this topic as it is unlikely to affect them, either directly or indirectly, in many ways. For those of us active in the markets, it is important. It is impossible to overstate the influence the Fed has in these markets as a regulator, a policymaker, and an investor. Its portfolio is enormous, weighing in at approximately 23% of our gross domestic product (GDP) and about 12% of the privately held Treasury market. It is the single-largest repo counterparty in the markets, lending over 55% of Treasury collateral and about 38% of both Treasury and MBS collateral. In fact, its repo book alone is bigger than the sum of all other Treasury repo providers combined. The Fed is, in short, a behemoth capable of profoundly changing the face of the money markets, as it has done in the past. So the idea that its largest tool, and the money markets' largest investment, could go away could have profound supply implications for money market funds.... With fewer banks needing reserves, trading in the federal funds market became thinner and less relevant. To restore balance to the money markets and strengthen its control over the federal funds rate, the Fed created its RRP program, which provided a floor under money market rates by offering a practically unlimited supply of what were considered risk-free assets -- repos collateralized by Treasury securities held in its SOMA."

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