Questions tagged [federal-reserve]

Use only for questions that are directly related to the central bank of the United States, the "Fed". For example, US monetary policy, US money supply, US balance sheet, etc. Do not use for generic questions related to central banks, monetary policy or other, which are not directly related to the Fed. Use instead central-banking, monetary-policy, or related tags.

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Relative importance of the federal funds market in the post-2009 US economy

In the pre-financial crisis US economy, depository institutions had almost no excess reserves. Hence, it would make sense for some banks to have shortages of reserves and some with excess of reserves. ...
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25 views

Federal Reserve OMO money goes to the Treasury? [duplicate]

If Federal Reserve performs open market operation by selling government securities then Fed gets money, who keeps that money? Does it go to Federal Reserve Deposit or the department of Treasury or ...
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What is the purpose of the Treasury issuing bonds?

I have always thought that the US Treasury issues bonds to raise money to allow the US to pay off debts in the short- and long-term. However, recently, I have read in a book on Modern Monetary Theory ...
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30 views

What does the Fed do with their profits?

As far as I understand the system the Fed prints money which it then uses to buy bonds. Bonds are basically statements of debt meaning that the Fed receives interest from the parties it has bought the ...
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56 views

Why's Federal Reserve buying individual corporate bonds, when corporations have been selling them successfully?

On Jun 15 2020, the Federal Reserve is expanding its Secondary Market Corporate Credit Facility into corporate credit to now buy individual corporate bonds, on top of the exchange-traded funds it ...
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30 views

Does the government ever pay back its debt from the OMO to the Fed? [closed]

I'm getting confused about how exactly does money being created by the Fed. From investopidia.com: ...
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27 views

Why would banks not want to lend, under Federal Reserve's Main Street Lending Program?

The Fed is paying 95% of the loan, so why would the banks be scared of lending? Even if the bank loses their 5% because they partaked in Fed's Main Street Lending Program, can't the Federal Reserve or ...
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28 views

Why doesn't QE cause the federal funds rate to continue decreasing?

Quantitative easing (QE) is essentially a large-scale form of open market operations, in which the Fed buys large amounts of treasury bills of all maturities (ranging from 1-month to 30-year) and ...
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93 views

How does the federal funds rate compare to the federal discount rate?

The federal funds rate is the interest rate charged to banks when they borrow from each other overnight in the federal funds market to satisfy their reserve requirements. This rate is influenced by ...
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Interest rate determination in the real world

I have just learnt about the demand and supply framework for money and how the equilibrium interest rate in an economy can be determined. In theory, based on that framework, an increase in nominal ...
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74 views

How much moral hazard from Federal Reserve's purchase of junk bonds? [closed]

Why doesn't the Federal Reserve appear to worry Moral Hazard? How bad's the Moral Hazard? The Fed is creating money to transfer to the balance sheets of corporations that invest in securities like ...
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56 views

What does the Fed mean by “smoothening money market functioning”?

In many recent interviews, Fed Chairman Jerome Powell has repeatedly mentioned that ensuring the smooth functioning of money markets is a key goal of the Fed's recent monetary policy actions. I want ...
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When the federal reserve buys bonds or other assets from banks, do the banks make a profit?

My understanding is that the federal reserve is injecting money in the market by buying bonds and debt from banks. Do the banks make a profit on the sale of their bonds or corporate debt to the feds?...
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37 views

How central banks “create” negative interest rates?

How can the Fed push Fed Funds rate to negative? I think I understand how it works with >= 0 -- they just lend reserves for bonds until they hit their targets, but what about <0? Has this something ...
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Are FedWire transfers and volume tracking exchanges of reserves between banks that have accounts at the Federal Reserve?

Looking at Fedwire® Funds Service - Monthly Statistics it appears that these transactions are between banks but I'm trying to confirm is whether the stuff they are exchanging is classified as reserves....
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Does the federal reserve create any type of deadweight/welfare loss?

In microeconomics, we learn that when a good is overproduced or under produced, there is a dead weight loss associated with it. It seems like the same concept would apply to macroeconomics, where the ...
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How can the Fed realistically address the issue of frontrunning (in the context of its ETF purchases)

In the first two days in which the Fed's corporate bond program started buying ETFs, purchases totaled around USD305m. The size of the program is much larger, and it would seem very reasonable to ...
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Impacts of Suspending Mortgage and Rent Payments

Recently, there has been some support for suspending rent and mortgage payments, the goal being to provide financial relief during the Covid-19 response. I'm wondering what the impacts for the ...
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Regarding the role of the Fed in controlling interest rates

When it is said that the Fed cut interest rates, does this refer to the discount rate, fed fund rate or both?
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Must US Treasury backstop US Federal Reserve?

The Constitutional Case for the Fed's Treasury Backstops | Cato @ Liberty writes no, I think? But I don't quite understand the financial terms iike "lever-up", backstop", "helicopter money". I looked ...
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1answer
19 views

Can we figured out the total money supply using MB? [closed]

If we look at the total in the federal reserves account Here at the moment is about 3 trillion and if the reserve requirement is 10% does that mean that there is at least 30 trillion out there in ...
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1answer
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Can m0 be created as a loan? [closed]

Are the following true? m0 is only created by destroying something else (federal reserve deposits)? m0 can be created as a loan? Related questions: can something other than federal reserve deposits ...
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1answer
20 views

What exactly is on the Fed balance sheet?

All the rage these days is how crazily big the Fed's balance sheet has grown. Looking on federalreserve.gov, I can see its value topped up ~6,573,136 millions USD (~6 trillion USD). Fine, but is ...
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The process of printed money reaching the government?

I saw a link that suggested that when the fed prints money, this money is actually lent to the government in the form of bonds, not given. This, despite the fact that the Fed is (loosely) associated ...
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25 views

How much money has the Fed printed?

The Federal Reserve is the bank of banks in the US. While it cannot force banks to change their rates in order to monitor the economy, it has several other ways to influence. One way it by printing ...
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Why does a loose Fed policy reduce the downward pressure on the currencies of emerging markets?

To start off, my background is not in economics but in Computer Science. I recently read in the Economist that a looser Fed policy removes downward pressure on the currencies of emerging markets. Is ...
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What caused “excess liquidity” in equity market, when CPI was deflationary at the same time period, which caused 'market crash in 1929' in USA?

To begin with, my question is NOT about the reasons of "the great depression" or "market crash" which led to the great depression. Rather, my question is about the reasons for the 'excessive cash ...
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How does the Fed measure the shadow banking sector in the US?

It's apparently popular to say on TV [at 2:20 in that clip] that the Fed has no idea what's going on in shadow banking sector. To what extent is that true? (I could ask this on Skeptics as well given ...
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What's Term Auction Facility and how does it address the liquidity problem

I have read https://en.wikipedia.org/wiki/Term_auction_facility and https://www.investopedia.com/terms/t/term-auction-facility.asp Under the program the Fed auctions collateralized loans with terms ...
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148 views

How does the Federal Reserve unwind the asset purchasing scheme announced in response to the 2020 Coronavirus Pandemic?

On Monday, 06 April, 2020 the Financial Times reported that the Federal Reserve balance sheet could increase to $9 trillion. This is partly due to the myriad of initiatives, some new, to protect the ...
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1answer
134 views

Is there some background/explanation why the Fed discontinued publishing their M3 indicator, circa 2006?

As Wikipedia says and as it can be easily verified, since 2006, the Fed no longer publishes an M3 indicator (unlike the ECB which still hangs on to that notion). So is there some background or ...
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60 views

What is the Federal Reserve's “money printing” impact on inflation [closed]

In wake of Coronavirus, when the Fed announces it is printing \$2.2T, what is the impact on inflation? Does the M2 increase by \$2.2T? (Thus a 12.5% increase in inflation? That can't be right?) Is ...
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115 views

What amount of Quantitative Easing will cause hyperinflation?

You all know that Quantitative Easing shifts the LM and AD curves right, so I haven't taken the time to redraw this picture. What's the maximum amount of Quantitative Easing that the Federal Reserve ...
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71 views

Why isn't the Federal Reserve bothered by the drawbacks of its unlimited Quantitative Easing?

On Mar. 26 2020, Fed announces unlimited QE and sets up several new lending programs : finance. I know little on the U.S., as my B.A. economics degree is from a Ontario university. If I remember the ...
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3answers
159 views

How much more can the US Federal Reserve spend on COVID-19?

On Mar. 26 2020, the Federal Reserve’s Balance Sheet Tops $5 Trillion for First Time. Is the Fed's spending capped at some maximum? I studied in Canada and am ignorant of U.S. I'm asking about just ...
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128 views

How is the Corona $2 trilion stimulus package going to be financed?

Perhaps this is a simple question but as a non-US citizen I don't understand how the US government is going to finance the $2 trillion stimulus package to combat the economic damage due to the Corona ...
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Federal Reserve Leveraging of COVID-19 Fund

Reading an article in The New York Times about the COVID-19 stimulus bill, I stumbled on this detail the Fed can take a limited amount of funds and deploy them widely: The central bank only needs ...
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1answer
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what would be an efficient investment when central banks have massive qe?

Recently the central bank said in a statement on its website. “Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift ...
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81 views

Question about Federal reserve open market operations - reducing money supply

I'm trying to understand how open market operations work to reduce money supply. So the Federal Reserve sells bonds... when this happens, the bank balances of the bond-purchasers goes down... the ...
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2answers
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Allowing the reserve requirements drop to zero

On 15 March 2020, the Federal Reserves announced that it would cut its benchmark rate to near zero and that it would also reduce the reserve requirements ratio to zero percent. This is part of its ...
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Why can money be described as “government non-interest bearing debt”

Trying to get some intuition on this statement I came across while reading Miguel Didrauski's dissertation "Rational Choice and Patters of Growth in a Monetary Economy". My sense is that it has ...
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1answer
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Why do banks keep vault cash instead of depositing all reserves at the central bank?

In what way to commercial banks benefit from keeping some of their excess reserves in the vault as opposed to depositing all of their excess reserves with the central bank (assuming the central bank ...
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1answer
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How did the massive flight to long-term bonds create a liquidity crisis?

A few weeks ago I noticed that several blogs and such were adamantly proposing that the Fed lower rates immediately by 50 bps. They said that the flight to safety -- to long-term government bonds -- ...
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Fed vs Treasury: 2008

Re-visiting the issue of the Troubled Assets Relief Programme (https://www.thebalance.com/tarp-bailout-program-3305895), both the Treasury and the Federal Reserve had a role to play in the "bailout". ...
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Are Open Market Operations a Gift to the .1%?

My Background I was an Economics major a long time ago and I don't work in a related field. I have this question that's been nagging me. I hope somebody can answer the questions at the bottom. ...
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What is the best observable proxy for the instantaneous risk-free market interest rate?

I am exploring a number of different models using daily data, of the US economy, and am trying to gather up observable proxies for some of the most important macro and micro variables, and surveying ...
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Is there a relationship between stock market hedge fund leveraging and the repo market?

Lately there have been many articles attempting to link repo-market borrowing with equity market increases. 1 I can see a link if the hedge fund is buying treasuries or mbs and financing it by using ...
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Negative interest rate on bond yield

In Black-Scholes model $r$ is defined as risk-free interest rate. What I have understood is that risk-free comes from the yields on sale of government bonds. What does that mean if the interest rate(...
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111 views

Is an alternative other than negative interest rate possible?

Currently there is a lot of talk about negative interest rate and possibly US would be adopting that. Denmark was the first country in the world which has "successfully" applied negative interest rate....
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How would M2 and Velocity of M2 be affected if balance sheet expansion continues long-term?

Let’s assume that the Federal Reserve does NOT discontinue injecting liquidity into the Repo market but, instead, continues a long-term policy of continuous and regular liquidity injections. Let’s ...