FAST FIVE: The Fed Is Quietly Handing Out $250 Million To A Handful Of Happy Recipients Every Single Day
While one can debate for hours why there is a record $2.330 trillion in cash parked at the Fed's overnight facility and what it means for systemic plumbing problems, the fact is that there is a record $2.33 trillion in cash parked at the Fed's overnight facility, doing nothing.
Well not nothing: it was nothing when rates were zero, but at 1.55% which is the current rate, that $2.33 trillion is a golden goose for the 108 counterparties that were parking cash at the facility, a mixture of money market funds, banks, GSEs and various other financial intermediaries.
The chart below shows the payment in interest that the Fed makes day on this record $2.33 trillion in funds: as of today it amounts to just over $100 million every single day.
Whatever they are called now, however, reserves parked at the Fed (which is technically an incorrect phrase since the reserves are created by the Fed) also collect interest, and as of today, the Fed's Interest on (Excess) Reserves rate, or IOER, is 1.65%.
As a reminder, the Fed hopes to keep hiking at least another 175bps (or more) in the next 6 months, which will push the rate to 3.50% and will mean that the Fed will be paying half a billion in interest every single day to a handful of mostly unknown counterparties every day, money which for said counterparties is also known as (riskless) profit and which is only the result of the Fed's previous money printing.