In order to affect monetary policy, the Fed now pays 4.9% interest[1] on $3.03trn of reserve balances[2], which is now costing them approx $150bn/yr run rate. Just 12 months ago they paid 0.15%.
This $150bn cost is a consequence of quantitative easing massively expanding reserve balances, and those reserve balances still existing in a period of high inflation which is being fought with high interest rates. The obvious solution is quantitive tightening to shrink the quantity of reserves, however there's justifiable concern about the effects this could have on the still-fragile banking system.
This is real money to the US taxpayer. The Fed used to remit $100bn a year to the US treasury, which it has now stopped doing. Instead, the Fed is sending this money to the US commercial banks which hold US reserves.
And all that money they're paying in interest... how do they argue that those interest payments won't find its way back into the economy and further fuel inflation?
Those are interest payments on reserves. Reserves can only be used in bank-to-bank settlements, and not useable by any institution that isn't part of the Fed's system.
Likely because its being held at the top at one of the primary dealers until they choose to use some of it. Maybe there's an agreement that they won't use it?
following this statement to its logical implications, if they lower interest rates even further below a Taylor Rule, then that would be deflationary since less money would find its way back into the economy and fuel inflation?
by not printing money they are printing money or something..cough...tell me you don't understand monetary policy without telling me you don't understand monetary policy.
the money they lose when rates go up is of no more significance than the profits they make when they create high-powered reserves. everything on the Fed's balance sheet is outside the real economy. what matters to the real economy is the current nominal and real interest rates and the expectations for where they are going.
net income (as opposed to cash flow) is mostly a fiction in general but all the more so when it's the Fed.
> Fed losses from its interest-rate-risk exposures—unrecognized taxpayer losses—are now being realized in ways Congress never intended and at magnitudes neither the Congress nor the Fed ever expected.
When things happen that congress or the Fed never expected (aka the 'experts' and 'planners' in all this)... that should ring alarm bells. Those saying 'nothing to worry about' are putting on a brave face. Shouldn't need to understand economics to see that much.
like an army of MIT PhDs didn't model obvious 1st-order effects
literally everyone who knew anything expected it, it's built into every model
what is supposed to happen if the Fed reports book losses or negative equity. hard to go bankrupt if you can literally print money. stupidest FUD and agitprop and unfortunately typical of the WSJ opinion section
This $150bn cost is a consequence of quantitative easing massively expanding reserve balances, and those reserve balances still existing in a period of high inflation which is being fought with high interest rates. The obvious solution is quantitive tightening to shrink the quantity of reserves, however there's justifiable concern about the effects this could have on the still-fragile banking system.
This is real money to the US taxpayer. The Fed used to remit $100bn a year to the US treasury, which it has now stopped doing. Instead, the Fed is sending this money to the US commercial banks which hold US reserves.
[1] https://fred.stlouisfed.org/series/IORB
[2] https://fred.stlouisfed.org/series/BOGMBBM