Fed Money Printing To Go Overboard? JPMorgan Sees $2T Infusion Into Banking System Amid Central Bank's Move To Shore Up Liquidity

The government’s move to backstop deposits at failed banks helped sanity return to the financial markets. A section of the economists sees the mitigatory measures resulting in the unintended consequence of fanning inflationary pressure, equating the rescue plan to quantitative easing.

What Happened: The Fed will likely inject about $2 trillion into the U.S. banking system to ease the liquidity crunch faced by banks, JPMorgan equity strategist Nikolaos Panigirtzoglou said in a note to clients, reported Bloomberg.

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“The usage of the Fed’s Bank Term Funding Program is likely to be big,” the analyst reportedly said. The maximum usage from the facility is about $2 trillion, which is the par amount of the bonds held by banks outside of the Big five banks, he added.

The U.S. banking system still has $3 trillion of reserves, although much of it is held by the largest banks, JPMorgan reportedly said.

Why It’s Important: The BTFP program was announced by the Fed last weekend under which additional funding will be made available in the form of loans of up to one year in duration, to banks, savings associations, credit unions and other eligible depository institutions. These institutions can avail of the loan by pledging U.S. Treasuries, agency debts and mortgage-backed securities as well as other qualifying assets as collateral.

This funding was meant to help the banks to tide over the liquidity crunch arising out of the bank runs, precipitated by the collapse of three banks in the U.S., including that of SVB Financial Group SIVB-owned Silicon Valley Bank.

Taking a potshot at the Fed action, economist Peter Schiff said, with the latest Fed move, it has effectively increased the insurance deposit ceiling to infinity. He also raised the specter of the value of bank deposits falling due to inflation amid the increased money supply.

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