Today the Fed announced a hike on the interest rate that they will pay on reserves. As I’ve mentioned before, this essentially gives the Fed the ability to create money. In time, this additional money will successfully inflate. I couldn’t find an article from the usual sources, so here’s the press release from the Fed:
Previously, the rate on excess balances had been set as the lowest federal funds rate target established by the Federal Open Market Committee (FOMC) in effect during the reserve maintenance period minus 75 basis points. Under the new formula, the rate on excess balances will be set equal to the lowest FOMC target rate in effect during the reserve maintenance period less 35 basis points.
This move runs counter to the goal of getting banks to increase lending. Now it becomes even more lucrative to not lend.
