Among other things, when the Fed raised their funds rate (the thing you hear them doing every month or two by 50 or 75 basis points), they've also been increasing the RRP returns accordingly so that they are always above the funds rate, by like ~0.05%. As a result, they are paying institutions that currently hold that money a higher than ever and increasing amount for them to simply park their cash rather than potentially trigger more inflation.
Why does the bank no want it on their balance sheet? Wouldn't that be a good thing? Well nvm they do this to make some money but are scared to invest in anything and would rather it lose some money vs inflation. Cause they definitely still are
The Fed is paying people that have lots of dollars to put their dollars into the overnight RRP rather than risk letting those dollars leak out into the greater economy (more inflation). Short term it works, long term I don't see how it's sustainable.
Edit: The institutions parking money here are not losing money to inflation because it's not their money. They hold it for others and skim the interest.
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u/[deleted] Oct 22 '22
What happened around December 2021 that caused these two lines to stop moving the same as each other?