This chart suggests the Fed is not fully sterilising its bailout — at least not yet. Unless bill issuance picks up, we’re looking at what appears to be, Japanese-style quantitative easing.
From Bank of America, again:
In other words, it looks like the Fed may be financing its bailout through long-term borrowing, old school taxes and inflation. Bank of America, for one, is still expecting sterilisation to pick up:
We are still assuming that the Fed will offset the bulk of the additional growth in excess reserves into year-end, as excess reserves will bloat bank balance sheets with low-yielding assets (huge excess reserves should impact interest margin and return on assets estimates). However, unless SPF bill issuance grows much faster than the Fed balance sheet, there will be a massive amount of excess reserves into year-end, pushing down the Fed effective rate.
Related link:
The unthinkable - FT Alphaville
