But how much did interest did the Fed actually credit to reserves over the
past year? I wasn't able to find the dollar amount anywhere.
The Fed got the authority to pay interest on the required and excess
balances in 2006 (effective 2011, then moved up to last year in the wake of
the crisis). When the enabling legislaton was passed, the estimated cost by
the Congressional Budget Office was relatively modest - $253 million in the
first year, rising to $308 million by the fifth year, for a total $1.4
billion over five years.
Of course, that was pre-history. The amount on reserve has ballooned since
then. At the same time, in those complacent days, the CBO based it's
estimate on the assumption that the fed funds rate would average 4.5% from
2008 to 2016 and the Fed would pay interest at a rate 0.1 to 0.15 percentage
points below that. It projected reserves of about $8.3 billion. In fact, I
believe the Fed began paying 3/4% last September or October, then dropped
the rate to 35 basis points and the current 1/4% this year.
See: http://www.cbo.gov/doc.cfm?index=7692&type=0
----- Original Message -----
From: "Julio Huato" <[email protected]>
To: <[email protected]>
Sent: Friday, October 23, 2009 5:35 AM
Subject: [Pen-l] Corrections: Fictitious Capital
Sabri,
Does anyone know what the current interest rate is on the non-borrowed
reserves?
It is published here:
http://www.federalreserve.gov/monetarypolicy/reqresbalances.htm
Until 11/3, the range of the federal funds rate targeted by the Fed is
0-.25. So, indeed, the rate on reserves is (most times) above the
federal funds rate.
Nice way to encourage the banks to lend.
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