We are up to $800 billion in cash parked at the Fed using the reverse-repo facility. At the same time, Fed rates for IOER and overnight repo were both raised last week by the FOMC. What do you think is happening?
My own view is that the money market funds are swimming in cash because stock and bond investors find the current market prices unattractive. Additionally, the US Treasury department has been required since 1Q21 to draw down its cash balance, so there are fewer short term US bonds for money market funds to buy. Banks have been parking QE generated reserves at the Fed for years. Have we hit a point where Fed provided liquidity is just circling back to itself? It sure seems that way today. Oh, and by the way, the Fed did raise interest rates last week.
Robert Lloyd, CFA®
Chief Investment Officer
Lloyds Intrepid Wealth Management
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