Fed Paid Banks and Funds $400 Billion Over 2 Years for Sitting on Cash

Contact Your Elected Officials
The Epoch Times Header

The central bank now pays 5.4 percent annual interest on โ€™reservesโ€™โ€”any money a bank leaves parked at the Fed overnight.

The banking industry has benefited from the Federal Reserveโ€™s measures to control inflation. Over the past two years, the U.S. central bank paid out more than $400 billion to banks and money market funds in interest payments and other transactions meant to curb lending to fight inflation, based on data published by the Fed as of July 1.

After a rate hike spree in 2022 and 2023, the central bank now pays 5.4 percent annual interest on โ€œreservesโ€โ€”any money that a bank leaves parked at the Fed overnight. The banks, on the other hand, havenโ€™t necessarily passed on the windfall to customers, as deposit rates remain low compared with the rates that banks receive from the Fed. Customers would often have to use less convenient tools, such as certificates of deposit, to access rates comparable to what the Fed currently pays.

The Fed has been authorized by Congress to pay interest on reserves and has done so since 2008. For many years, the interest was only about 0.1 percent as the Fed was keeping rates near zero. In 2022, however, inflation spiked to a 9 percent annual rate, prompting the Fed to rapidly raise the rates.

Interest on reserves creates a strong incentive for banks to only lend at rates higher than what the Fed offers because leaving deposits in their Fed accounts requires virtually no work and no risk.

The Fed is using this mechanism to tighten credit, depress demand, and thus ease price inflation pressure. Constraining lending also reduces the amount of dollars in circulation because banks de facto create new money as they issue loans. The new money then leaves circulation when the loans are repaid.

Another mechanism is called a โ€œreverse repurchase agreement,โ€ or reverse repo, in which the Fed sells treasuries with an agreement to buy them the next day for a slightly higher price. The price difference is expressed by the Fed as an annual rate and is affected by the Fedโ€™s rate hikes, with its key rate currently standing at 5.3 percent.

Byย Petr Svab

Read Full Article on TheEpochTimes.com

The Epoch Times
The Epoch Timeshttps://www.theepochtimes.com/
Tired of biased news? The Epoch Times is truthful, factual news that other media outlets don't report. No spin. No agenda. Just honest journalism like it used to be.

Was Texas Storm Manmade?

Another โ€œ1-in-100 yearsโ€ weather event in Kerr County happened next to a Texas designated โ€œWeather Modification Map of Rain-Enhancement Projects in Texasโ€.

The America Party Will Harm Democrats The Most

Elon Musk formed the America Party after an X poll asking his followers if they wanted โ€œindependence from the two-party system!

Democrats Exhibit the Dunning-Kruger Effect (DKE)

โ€œThe Dunning-Kruger effect is a cognitive bias where people with low ability at a task overestimate their competence, while those with high ability underestimate their competence.

250 Countdown

Those 56 intrepid men who signed put their very lives, honor and fortunes on the line. There was no auto-quill to accommodate their signatures.ย 

How the Senate Parliamentarian Changed the OBBB

An unelected bureaucrat does a important job in the U.S. Senate. Elizabeth MacDonough enforces senate rules on Trumpโ€™s โ€œOne Big Beautiful Billโ€.

Trial Begins Over Trump Adminโ€™s Deportations of Pro-Palestinian Students

A trial over President Trumpโ€™s attempts to deport pro-Palestinian activists began on July 7 with attorneys debating free speech.

Man Killed After Opening Fire at Border Patrol Facility in Texas

27-year-old man armed with a rifle was killed after opening fire outside Border Patrol facility in McAllen, TX, prompting shootout with feds and local police.

California Rejects Federal Push to End Transgender Participation in School Sports

CA education officials are refusing to end policies allowing transgender students to participate in school sports consistent with their gender identities.

Amazon Prime Day Set to Lift US Online Sales by $23.8 Billion

Online spending in the United States is expected to surge by $23.8 billion during Amazonโ€™s expanded Prime Day event from July 8 to July 11.

Trump to Extend Tariff Deadline to Aug. 1, Keep Rates at 10 Percent During Talks

White House press secretary Karoline Leavitt told reporters that Trump will sign the order to move the deadline to Aug. 1 from its current date of July 9.

DOJ, FBI Find Epstein Committed Suicide, Had No โ€˜Client Listโ€™

Jeffrey Epstein committed suicide and had no โ€œclient list,โ€ according to the Department of Justice (DOJ) and the FBI.

National Weather Service Fully Staffed During Deadly Texas Flooding: White House

White House press sec. Karoline Leavitt told reporters that the National Weather Service had a full staff on hand to handle the Central Texas flooding.

US Removes Terrorist Designation for Al Qaeda Affiliate in Syria

The State Department has removed from its list of foreign terrorist organizations Al Qaedaโ€™s affiliate in Syria, Jabhat al-Nusra.
spot_img

Related Articles