Instant payments are transforming how bank treasurers manage deposits and liquidity. Slide 1 displays a significant rise in FedNow activity over the past two years, which only stabilized last quarter. Despite this, FedNow accounts for only a small share of payments processed through FedWire, which reached $171 trillion last quarter (see Slide 2). Meanwhile, the average monthly issuance of Treasury Bills in the past year (shown in Slide 3) exceeded $2 trillion.

Kevin Warsh, President Trump’s candidate to succeed Jay Powell as Fed Chair when his term concludes this May, advocates for a smaller Fed balance sheet. However, as shown in Slide 4, the Fed’s System Open Market Account (SOMA) has already decreased to 21% of Gross Domestic Product (GDP), approaching its level before COVID and Quantitative Easing 2, which expanded it to a peak of 35% of GDP in 2022.

As mentioned in this month’s newsletter, the gap between the Effective Fed Funds Rate (EFFR) and the Secured Overnight Financing Rate (SOFR) remains slightly inverted. Although SOFR is a risk-free rate and EFFR reflects unsecured interbank credit risk, Slide 5 shows one of SOFR’s key benefits as a benchmark lending rate: its trading volumes are significantly higher than EFFR and have tripled since the administrators discontinued LIBOR at the end of 2021.

This year, domestic bank deposits hit a record high of over $17 trillion. While money market funds (MMFs) reached only $8 trillion, their growth has accelerated. Slide 6 shows their balances relative to GDP, which together account for more than 80%. Moreover, falling short-term interest rates over the past year have supported the stability of noninterest-bearing deposits, which were just under $4 trillion last quarter (see Slide 7).

However, lower rates did not significantly help the banking sector regain its home mortgage business, with origination volumes at major banks remaining near a two-decade low (Slide 8). Meanwhile, nonbank lenders are doing better and are the main reason home mortgage debt outstanding approached $14 trillion last quarter (Slide 9).

The outcome of the Iran conflict remains highly uncertain, causing significant volatility in financial markets. Polymarket, a platform where the public can wager on current issues—including politics, geopolitics, economics, sports, and entertainment—offers insights into public expectations regarding key questions posed to bank treasurers (Slide 10). According to this platform, the public generally believes that: 1) the Iranian regime will likely remain in power even if the U.S. invades; 2) there probably will be no recession in 2026; and 3) inflation will likely surpass 4% this year.