It's worth spelling out the mechanics of this as it pertains to the Fed. The TGA is a Fed liability. So are reserves. Spending the TGA swaps one for the other: a dollar out of the government's checking account is a dollar into the banking system. The Fed's balance sheet would not change size but its liability mix would, as reserves go up one for one. A year ago, with runoff (QT) still underway, a TGA drawdown would have been absorbed as a cushion against an active drain—the familiar debt-ceiling dynamic. Runoff ended in December and the Fed isn't doing reserve management purchases this month, so there's nothing else moving reserves at the margin now. Treasury's cash balance wouldn't be offsetting a policy operation. It would be the operation. This raises a couple of interesting issues. First, the Treasury secretary has frowned upon the ample reserves regime, but that regime may be exactly what makes this possible. Second, this type of operation doesn’t prevent but it could complicate efforts to shrink the Fed’s balance sheet, which is a policy objective of the new Fed chair. Reducing the Fed’s footprint has increasingly been framed as a liability-side endeavor. (I.E., you don't want to shrink assets below what liability demand requires, as this would introduce more volatility at the front end, so the work has shifted to lowering demand for reserves through bank liquidity regulation). Increasing reserves through the TGA drain pushes in the opposite direction.(Nick Timiraos)