zerohedge.com / Via Global Macro Monitor / Jul 16, 2017
Since the Fed began raising interest rates in December 2015, financial market liquidity conditions have loosened considerably. Recall our post, Orwellian Monetary Policy, which we wrote in May.
“Tightening is Easing”
Since U.S. monetary policy began tightening in December 2015, the Fed has added liquidity to the financial system through interest payments to banks on excess reserves and has reduced its surplus to the Treasury adding to the fiscal deficit. Thus the financial system has had an effective injection of central bank liquidity and a fiscal expansion during a period of monetary tighenting. – Global Macro Monitor
The current Fed policy effectively injects liquidity into the financial system through raising the IOER rate — printing money to make interest payments on reserves banks hold on deposit at the Fed. This compares to the traditional monetary where the Fed drains reserves from the financial system to drive the Fed Funds rate higher. We are years off to getting back to traditional monetary policy. Maybe not in our lifetime.
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