Details of central bank balance sheets once were reserved for people who have a taste for policy minutiae. In fact, until 2008, monetary policy was entirely about interest rates, with quantities adjusting to meet the desired target. But, once interest rates neared their effective lower bound, things changed. When central banks introduced large-scale asset purchases, attention shifted to the overall size and composition of the balance sheet.

While it is surely important to consider the Federal Reserve’s securities holdings and lending, its liabilities are important as well. Here, analysts tend to focus on one of two things: some look at the path of commercial bank reserves, while others add currency in circulation to focus on the monetary base.

Rarely, however, does anyone (including us) look at the size of the U.S. Treasury account. In this post, we explain why we believe it is now quite important….