Does the Fed seigniorage cause rate hikes?

Not right away. Tax avoidance takes time. But the banks will manage to match excess reserves to Treasuries held and drive down the seigniorage. Then Treasury is force onto the market and rates rise. After that, something else, unknown to me, happens.

The central bank always tends toward a standard two color pit, the seigniorage become relatively fat across all cycles. This is he process that drives shadow banking.   The Fed system needs a technoogy upgrade.