The Fed (and Treasury) Is Targeting Liquidity

Latest Evidence From Banks’ Reserves

Financial stability demands adequate levels of ‘liquidity’. Policy makers must ensure this through Central Bank provision. Latest data suggest that the US Fed/ Treasury are deliberately targeting US banks’ reserves, or put differently, levels of money market liquidity. In other words, investors should be less worried by the feared rebuild of the Treasury General Account (TGA) following a debt ceiling deal. This has been threatening to withdraw a whopping US$500 billion from money markets. If we are correct, this drain now looks unlikely.