On June 28, after the Fed stopped reinvesting all maturing U.S. Treasuries, the U.S. Treasury could only borrow more money from the investing public.
The risk is that increased borrowing could reduce reserves in the banking system to levels that have caused trouble in the past.
But so far, that hasn’t happened. Since the U.S. reached an agreement in early June to suspend the debt ceiling, the U.S. Treasury has issued a surge in Treasury bills, but they appear to have found a home mainly with investors who also have significant other resources.
The recent decline in the use of the Fed’s reverse repurchase facility suggests that money market funds absorb the vast majority of the increase in Treasury bill issuance, thereby limiting the impact on bank reserves.
Total U.S. bank reserves are still over $3 trillion.
Wall Street estimates that the banking system needs at least $2.5 trillion in reserves to run smoothly, though they don’t have much confidence in that estimate.