Definition
Money that banks keep in their accounts at the Federal Reserve.
The story
Reserves are how banks pay each other and meet sudden withdrawals. The Fed pays interest on them (interest on reserve balances), which is one of its main tools for steering short-term rates. When the Fed buys bonds through quantitative easing (QE), reserves grow; when it shrinks its balance sheet, they fall.
Why markets watch it
How plentiful reserves are affects how smoothly money markets work, which the Fed watches closely.
See it in the story
Connects to
Interest on reserve balancesFed balance sheetQuantitative easingQuantitative tightening
We explain why it moves markets. What you do with it is your call. Commentary and education only. Not financial advice. All terms