<p>On top of the Fed's USD120bn monthly treasury/MBS purchases, the drawdown in Treasury issuance over the last year has also added over USD1tr to the system. The premise is, faced with drawn-out debt ceiling proceedings, the Treasury General Account had to use its cash balance for financing more than it raised from auctions, leading to more liquidity on a net basis. While an agreement may eventually be struck and plans were signaled to restore its cash balance to <a href="https://home.treasury.gov/system/files/136/Sources-and-Uses-July-2021.pdf" rel="nofollow noreferrer">a projected USD750bn by the end of this month</a>, on balance, the Treasury's liquidity management would still have added more than it took away, even if it makes that projection.</p>
<p>Taken together, monetary easing and &quot;fiscal easing&quot; have led to a large volume of liquidity and some signals from the money market suggest it's more than investors/institutions can process. I'm simply referring to the pressure on short-term rates; bills with tenor at less than one year are all yielding less than the 5bp floor set by the Fed earlier this year. Surely, that's not supposed to happen?</p>
<p>In an attempt to map out the various forces at play, I thought perhaps the independent priorities of the Fed and Treasury have led to overly ample liquidity conditions. The two have a history of clashing on near-term priorities, summed up <a href="https://www.tandfonline.com/doi/full/10.1080/15140326.2020.1750120" rel="nofollow noreferrer">here</a>.</p>
<h2>Question</h2>
<p>Is it accurate to interpret the buildup in excess liquidity as a result of 'double QE' from both the Fed and Treasury? If not, what might we look at to see evidence of the two forming coordinated liquidity management?</p>

CC BY-SA 4.0
2021-09-10T15:15:12.490Z
I don't quite understand your question. You're asking if QE from the Fed plus the cash drawdown in the Treasury General Account has caused increased liquidity and, thus, lower short-term rates, right? Is that your question? I don't understand the second part where you ask " If not, what might we look at to see evidence of the two forming coordinated liquidity management?" Are you asking if the Fed and the Treasury coordinate to control the money supply?
jmbejara
CC BY-SA 4.0
2021-09-13T03:06:52.960Z
@jmbejara Yeah, that's a big part of what I'm after: coordination with regards to money supply, and whether or not current excess liquidity is strong evidence for failure to coordinate
Arash Howaida
<money-supply><federal-reserve><bonds>
How the Fed and Treasury coordinate on liquidity management
Arash Howaida
# How the Fed and Treasury coordinate on liquidity management

(Asked by: username_0 on 2021-09-08)

On top of the Fed's USD120bn monthly treasury/MBS purchases, the drawdown in Treasury issuance over the last year has also added over USD1tr to the system. The premise is, faced with drawn-out debt ceiling proceedings, the Treasury General Account had to use its cash balance for financing more than it raised from auctions, leading to more liquidity on a net basis. While an agreement may eventually be struck and plans were signaled to restore its cash balance to [a projected USD750bn by the end of this month](https://home.treasury.gov/system/files/136/Sources-and-Uses-July-2021.pdf), on balance, the Treasury's liquidity management would still have added more than it took away, even if it makes that projection.

Taken together, monetary easing and "fiscal easing" have led to a large volume of liquidity and some signals from the money market suggest it's more than investors/institutions can process. I'm simply referring to the pressure on short-term rates; bills with tenor at less than one year are all yielding less than the 5bp floor set by the Fed earlier this year. Surely, that's not supposed to happen?

In an attempt to map out the various forces at play, I thought perhaps the independent priorities of the Fed and Treasury have led to overly ample liquidity conditions. The two have a history of clashing on near-term priorities, summed up [here](https://www.tandfonline.com/doi/full/10.1080/15140326.2020.1750120).

## Question

Is it accurate to interpret the buildup in excess liquidity as a result of 'double QE' from both the Fed and Treasury? If not, what might we look at to see evidence of the two forming coordinated liquidity management?

**Tags:** money-supply, federal-reserve, bonds
> **Comments:**
> **username_1**: I don't quite understand your question. You're asking if QE from the Fed plus the cash drawdown in the Treasury General Account has caused increased liquidity and, thus, lower short-term rates, right? Is that your question? I don't understand the second part where you ask " If not, what might we look at to see evidence of the two forming coordinated liquidity management?" Are you asking if the Fed and the Treasury coordinate to control the money supply?  
> **username_0**: @jmbejara Yeah, that's a big part of what I'm after: coordination with regards to money supply, and whether or not current excess liquidity is strong evidence for failure to coordinate  

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## 0 answers

