Williams says Treasury's TGA rebuild in early July drained system liquidity through rapid bill issuance.
“The Treasury began to rebuild its TGA balance in early July. This involved a rapid increase in net bill issuance and a commensurate drain of system liquidity.”
Williams argues historical scholarship shows monetary policy extends beyond short-term rates to broader liquidity and longer-term rates.
“However, this narrow understanding of monetary policy is alien to the history of monetary economics and central bank practice.”
Williams says non-reserve liabilities have swung by up to $460 billion over one-month periods recently.
“In recent years, aggregate non-reserve liabilities (excluding ON RRP) have increased by as much as about $250 billion on certain days and by as much as roughly $460 billion over a rolling 1-month time horizon ( Panel 10 ).”
Williams details rapid liquidity drain: ON RRP fell from $200 billion to near zero, reserves dropped $350 billion.
“Between early July and mid-September—when the TGA reached around $800 billion—the ON RRP fell from a balance of about $200 billion to de minimis levels, and reserves fell by $350 billion.”