Banks exploiting Fed’s facility, borrowing at a lower rate, then profiting by parking at a higher-interest unit.

Banks are pocketing real money by borrowing money from the Fed's newest backstop facility, which charges a lower rate, and then parking it at another unit of the Fed, which pays higher interest. Banks are borrowing record amounts from this new facility. t.co/0Yt4STWbb9 pic.twitter.com/UYElYhjQxa

— Lisa Abramowicz (@lisaabramowicz1) December 22, 2023

via Bloomberg:

Banks borrowed a record amount from the Federal Reserve’s newest backstop facility in the most recent week as increasing wagers on interest-rate cuts made it a more attractive choice.

Data from the Fed showed an all-time high $131 billion in borrowing from the Bank Term Funding Program, or BTFP, in the week through Dec. 20. That compares to a previous record of $124 billion, reached in the week ended Dec. 13.

We have seen countless versions of this chart before.

First inflation wave was triggered by combination of unprecedented Covid fiscal response on demand side combined with unprecedented Covid supply chain disruptions.

What would need to happen for larger second inflation… pic.twitter.com/eGNvxFGq59

— Michael A. Arouet (@MichaelAArouet) December 21, 2023