Federal Reserve Float

The Federal Reserve float isn’t one of the many floats at the Christmas parade (though we’d love to see that). Rather, a “float” in general in the finance world refers to something that’s not settled yet.

The Federal Reserve float is the double-counting of one transaction before it clears in the Federal Reserve system. Uncleared checks everywhere will show themselves as an asset at two banks at the same time when the check is migrating funds from one bank to another. Because different banks and types of transfers have different timing for funds processing, there’s almost always some overlap. With the Federal Reserve float, it’s when the Fed is involved in the float, causing them to double-count money.

So what if the Fed double-counts money, you say? Well, the Fed is the central bank, which is tasked with the job of controlling the money supply and making everything a-okay via monetary policy. In order for the Fed to do its job, it looks at the money supply, works magic to make changes to it, then looks at it again. The Federal Reserve float can mess that up a bit, leading the Fed to do some double-dip accounting on accident.

In a perfectly efficient banking system, there would be no float: transfers would be instant, no double-accounting happening. An economist can dream, right?