Treasury Tax Season Provides Preview of Fed’s Balance Sheet Unwind
- Receipts caused bank reserves to drop by the most on record
- Liquidity may look less like ‘spring break,’ Citi’s King Says
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The Treasury’s latest tax collection may preview how the shrinking of the Federal Reserve’s $9 trillion balance sheet, or quantitative tightening, will unfold for the markets and global liquidity.
The influx of personal tax receipts pushed the amount of cash in the Treasury’s account at the central bank to $908 billion as of April 20, the most since May 2021, data show. The Treasury General Account, or TGA, operates like the government’s checking account at the Fed. When Treasury increases its cash balance, that’s on the liability side of the Fed’s balance sheet, so as that goes up, it drains reserves from the system, and vice versa.