Fed Paid Funds and Banks More Than $90 Billion Over Past Year for Sitting on Clients’ Cash
The Federal Reserve’s anti-inflation efforts are becoming increasingly expensive. The U.S. central bank has paid out over $90 billion to banks and money market funds over the past year for letting the cash of their clients lay dormant. The payouts have ballooned in recent months as the Fed has repeatedly hiked interest rates.
The Fed’s policymakers boosted rates from virtually zero in mid-March to more than 4 percent—the highest in more than 25 years—in a bid to curb inflation that has increased over the past year to a 40-year high of some 9 percent.
The Fed pays interest on client deposits that banks electronically park at the central bank in order to discourage them from extending loans at cheaper rates. When interest rates are high, banks would prefer to store more money at the Fed, reducing credit supply….