The Fed is trying to maintain a particular fed funds rate plus or minus a little. The Funds rate is the wholesale price of money that banks pay. Banks loan without any consideration of their reserve account position. This is normal. The loans become a bank asset. To meet their reserve requirement, the banks then may borrow from other banks who have excess reserves. If there is a rush to borrow large sums, perhaps because rates are perceived as unusually low, perhaps coupled with other unusually large drains of reserves, there could be a larger than anticipated total drain. This might explain the C.B.'s need to shore up reserves with repo action or bond purchases. The unusual nature of this would be significantly increased demand for money by business at a time the C.B. is trying to hold down rates because they are concerned about a slowing economy. The latter usually corresponds with business belt tightening. Another factor is that the government is leaving large excesses of money in the economy at present, the deficit is expected to go near a trillion dollars. Where is all that excess money going if not into private savings and treasury purchases which again swells reserves that the Fed may have to drain? The emergency shoring up of reserves by the C.B should be seen as unusual but not as malpractice. What would definitely be malpractice however is the C.B. caving to pressure from a President, if not justified by Treasury requirements and economic indicators.
