Speech Summary: Stanley Fisher on Monetary Policy

Speech: Conducting Monetary Policy with a Large Balance Sheet (see link)

Date: 02/27/15

My Summary: Before the financial crisis, reserve balance outstanding was roughly $25 billion and relatively minor variations in the amount of reserves supplied by the NY Fed’s Open Market Desk could move the equilibrium federal funds rates up or down. Today, excess reserves are $3 trillion, and thus using traditional mechanism of adjusting the federal funds rate will not be feasible or predictable. Thus, the Fed will use the IOER (interest on excess reserves)–something that’s relatively new and began only on 10/23/08 as part of the Fed’s emergency powers, as its primary tool to move the federal funds rate in its target range. Since not all institutions will have access to IOER, Fed will also use overnight reverse repo agreements (ON RRP), which can be availed of by 100+ money market funds, 22 broker-dealers, 24 depository institutions and 12 GSEs (include Fannie Mae and Freddie Mac)., among possibly certain other tools.

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