Thanks to Mike Miller for the link to this piece speculating about the Fed halting paying interest on reserves.
Since this a relatively new authority, my guess id they are much more likely to lower the rate paid on reserves rather than stop paying interest all together.
How much more would a 25 bp cut in the rate paid on reserves add to overall lending? Not a lot, let’s be honest. It’s not the gaudy rates the banks are earning at the Fed that is keeping money parked on the sidelines. It is the uncertain economy, greater capital requirements and regulation that are keeping banks cautious. The 0.25% they get for doing nothing is basically immaterial, in my book.
What does the community think?
