The Cases of The Disappearing Fed Funds Market and the Reappeared Half Trillion

The Fed’s liabilities fluctuated wildly last week while total assets were little changed. The wild changes in liabilities were a direct result of the Fed actually supporting, promoting, and encouraging banks to dress up their quarter end balance sheets.
What a sordid spectacle. It confused many observers into thinking that something drastic was going on in the financial system. It was actually just a Fed shell game of moving bank deposits from regular reserve deposits to the Fed’s Reverse Repo Accounts, and then back, over a couple of days between the end of the third and beginning of the fourth quarter.
There has been essentially no change in the total size of the balance sheet since QE officially ended a year ago. And there will be no material change going forward until the Fed either decides to start shedding assets (not gonna do it) or until it restarts QE (somewhat more probable than shrinking the balance sheet).

This post was published at Wall Street Examiner by Lee Adler ‘ October 12, 2015.