ARKK - Federal Reserve Watch: The Changed Environment

2024-05-12 07:08:03 ET

Summary

• Since the Great Recession began, the Federal Reserve has changed how it functions and, consequently, has changed how commercial banks operate.
• Before, commercial banks adjusted their reserve positions through the Federal Funds markets, but now this market has been reduced to a small amount of trading.
• Bank reserves with the Federal Reserve now receive an interest payment and so have become the "tool" of commercial banks to manage their reserve positions.
• Now, the management of bank reserves has become much more volatile and put more and more pressure on the Federal Reserve to tailor bank "excess reserves."
• Analysts are growing more and more concerned that these changes have put the Federal Reserve more in the limelight and caused Fed actions to become more public and more political.

In attempting to understand what the Federal Reserve is trying to do and to understand how the banking system is reacting to what the Fed is trying to do, more and more analysts are struggling to understand just what is going on....

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