This means all type of US lending that starts right now would be at least 3% from the federal government.
Actually this isnt correct. The Fed Funds rate is a weighted average of the different rates that banks use to lend to each other. It has nothing to do with the Federal Government.
So you are saying the Fed is giving the banks a great deal by offering 3% through Repo?
Yet the commercial bank can get a 10 year yielding over 3.6% right now. Hell they can get 3.2% on a 3 month t-bill.
The volume in the reverse repo market has nothing to do with return. Over the last few months, the market has bid the securities up, especially the short term ones.
There is a lot more to the system then what you promote here.
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Fed paying out interest is fully guaranteed. Any other loan posses including commercial risk the lost of principal.
You have a point that the 3% is not a guarantee, but Fed is paying out at that rate.
In my humble opinion Fed should stop reverse repo. They say out right how hawkish they are in fighting inflation. If that is so force the banks to put the surplus cash into treasuries and bonds. This process will push rates lower, hence less inflation.
I stand corrected in some of the items due to my poor choice of words. Yet the numbers don’t lie. Banks are filled to the brim with cash while average American is trying to make ends meet.