The Institutional Risk Analyst

Why does the US central bank need to pay interest on bank deposits at the Fed? Because we have $35 trillion in public debt. The interest rate on T-bills, bank reserves deposited at the Fed and reverse repurchase agreements (RRPs) issued by the Fed must be roughly the same.

At the Fed, because “confidence” is considered a factor in “policy,” it is OK to fib and obfuscate about the true cost of monetary policy.

QE has created a gigantic interest rate mismatch across markets for banks, non-banks and other financial intermediaries including the GSEs