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Federal Reserve Exit Strategy: Number 9

The Federal Reserve went back to the commercial banks on Thursday and awarded $188.1 billion in term deposits. The deposits mature on February 26, 2015.

The Federal Reserve used term deposits back in November 2014 once the tapering of securities purchases connected with its third round of quantitative easing to temporarily remove reserves from the banking system. All the term deposits issued in this period ran off during the banking week ending December 17. On December 10, 2014, the Fed had $402.1 billion in term deposits on its balance sheet.

The timing of the reduction fits in with the Fed's efforts to make sure that sufficient liquidity was in the banking system to complete the 2014 holiday season.

Once the last round of quantitative easing was completed, the Federal Reserve starting using two tools, the term deposit facility and repurchase agreements, to begin reducing the reserve balances commercial banks held… Read More …