Scarce Reserves Regime

In a scarce reserves regime, the central bank keeps reserves in the banking system tight. Because banks are always close to their minimum, the central bank can steer short-term rates by adding or draining small amounts of reserves each day. This was how the US Fed worked before 2008.

After years of QE, the Fed switched to an ample reserves regime, where reserves are plentiful and rates are steered by setting the interest paid on them. During QT, the question is how close the system can get to scarcity before funding markets start to wobble.