Is the Fed short liquidity?

The bulk of its Treasury holdings are 1-5 yeas, barely paying 2%, on average.

The cost of overnight funds is already over that. So it is paying IOER and expenses and a minor dividend.


Excess reserves are leaving fast, and that reduces expenses.  Liquidity for the Fed are payments to Treasury from gains, it needs to pay the right to coin costs.  As long as it is making payments, the Fed has sufficient liquidity. If the Fed runs low on gains, it lowers IOER.

What is the Fed to do with an inverted curve? Buy debt at the short end, sell debt at the high end. The current configuration has the Fed walking a loop, deposits to treasury to debt cartel to one year rate.