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Report
The pre-crisis monetary policy implementation framework
This article describes the Federal Reserve?s monetary policy operating framework prior to the expansion of the Fed?s balance sheet during the financial crisis. To implement the Fed?s mandate of promoting price stability consistent with full employment, the Federal Open Market Committee (FOMC) sets a target for the overnight rate in the federal funds market, where banks trade reserve balances. In the pre-crisis framework, aggregate reserves were scarce such that relatively small changes in the level of reserves would affect rates in the fed funds market. The New York Fed?s open market trading ...
Journal Article
The pre-crisis monetary policy implementation framework
This article describes the Federal Reserve?s (?the Fed?s?) operating framework for monetary policy prior to the expansion of the Fed?s balance sheet during the financial crisis. To implement the Fed?s mandate of promoting price stability consistent with full employment, the Federal Open Market Committee (FOMC) sets a target for the overnight rate in the federal funds market, where banks trade reserve balances. In the pre-crisis framework, aggregate reserves were scarce, so relatively small changes in the level of reserves would affect rates in the fed funds market. The Federal Reserve Bank of ...
Journal Article
How Did the Fed Funds Market Change When Excess Reserves Were Abundant?
Prior to the 2007-2008 financial crisis, excess reserves in the U.S. banking system were scarce. After the financial crisis and up until early 2018, excess reserves were abundant. In this article, the authors document, analyze, and explain the differences in the performance of the federal funds market under the two different excess reserves frameworks.
Discussion Paper
How the Fed Smoothed Quarter-End Volatility in the Fed Funds Market
The federal funds market is an important source of short-term funding for U.S. banks. In this market, banks borrow reserves on an unsecured basis from other banks and from government-sponsored enterprises, typically overnight. Before the financial crisis, the Federal Reserve implemented monetary policy by targeting the overnight fed funds rate and then adjusting the supply of bank reserves every day to keep the rate close to the target. Before the crisis, reserves were generally in scarce supply, which periodically caused temporary spikes in the fed funds rate during times of high demand, ...