Fed officials can’t agree how big U.S. banks reserves should be

Bloomberg/Alex Harris

“When the Fed accumulated bonds to fight the 2008 financial crisis and its aftermath, the hoard proved useful to banks. Financial institutions could include those cash balances in their stable of high-quality liquid assets to satisfy post-crisis regulatory requirements. With the Fed still shrinking its balance sheet, policy makers are now trying to determine the optimal level of reserves. It currently stands at about $1.6 trillion.”

USAGOLD note:  Excess reserves are a remnant of the big-bang monetary experiment following the 2007-2008 financial breakdown.  Now the Fed is trying to figure out how to manage what it wrought. Interest rates have taken a back seat to expanding and shrinking the central bank’s balance sheet as the primary policy tool. No one, as this short article – and perhaps painfully so – points out, is quite sure how all of this is going to work out.  Confusion reigns not only at the Fed but daily within the financial markets.  Gold ultimately will be among the beneficiaries if investors come to a scary realization that the new monetary system has flaws programmed into its onboard guidance system.

Repost from 4-11-2019