Remarks at the Money Marketeers of New York University, New York City, by Brian P. Sack, Executive Vice President
Excerpts:
Overall, the large-scale asset purchases that the Federal Reserve has employed seem to have had their desired effects in terms of reducing longer-term interest rates. These purchases have been an important part of the policy response that the FOMC put in place to foster a sustained economic recovery. Moreover, that conclusion is reassuring for the future, as it suggests that central banks will still have effective policy options should the zero bound threaten again.
However, these asset purchases have ongoing implications for the balance sheet that may require adjustments along other dimensions, such as the implementation of reverse repos, term deposits, asset sales, or other measures. The size, likelihood, and timing of the appropriate adjustments will only become apparent over time, as they will depend on the evolution of the economy and financial markets. They will also depend importantly on the effectiveness of interest on reserves for controlling short-term interest rates in a high reserve environment—a policy regime that has not been fully tested in U.S. markets and that will have to be evaluated in real time.
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