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67 posts on "Federal Reserve"
October 17, 2024

Tracking Reserve Ampleness in Real Time Using Reserve Demand Elasticity

Decorative image: Man pulling an orange rubber band, holding a rubber band ball

As central banks shrink their balance sheets to restore price stability and phase out expansionary programs, gauging the ampleness of reserves has become a central topic to policymakers and academics alike. The reason is that the ampleness of reserves informs when to slow and then stop quantitative tightening (QT). The Federal Reserve, for example, implements monetary policy in a regime of ample reserves, whereby the quantity of reserves in the banking system needs to be large enough such that everyday changes in reserves do not cause large variations in short-term rates. The goal is therefore to implement QT while ensuring that reserves remain sufficiently ample. In this post, we review how to gauge the ampleness of reserves using the new Reserve Demand Elasticity (RDE) measure, which will be published monthly on the public website of the Federal Reserve Bank of New York as a standalone product.

August 14, 2024

­­A New Set of Indicators of Reserve Ampleness

Decorative Photo: Image of the Board of Governors of the Federal Reserve System.

 
The Federal Reserve (Fed) implements monetary policy in a regime of ample reserves, where short-term interest rates are controlled mainly through the setting of administered rates, and active management of the reserve supply is not required. In yesterday’s post, we proposed a methodology to evaluate the ampleness of reserves in real time based on the slope of the reserve demand curve—the elasticity of the federal (fed) funds rate to reserve shocks. In this post, we propose a suite of complementary indicators of reserve ampleness that, jointly with our elasticity measure, can help policymakers ensure that reserves remain ample as the Fed shrinks its balance sheet.

Posted at 7:00 am in Federal Reserve, Monetary Policy, Repo | Permalink
April 15, 2024

Can I Speak to Your Supervisor? The Importance of Bank Supervision

Decorative image: man holding a magnifying glass to a red wooden businessman leading way

In March of 2023, the U.S. banking industry experienced a period of significant turmoil involving runs on several banks and heightened concerns about contagion. While many factors contributed to these events—including poor risk management, lapses in firm governance, outsized exposures to interest rate risk, and unrecognized vulnerabilities from interconnected depositor bases, the role of bank supervisors came under particular scrutiny. Questions were raised about why supervisors did not intervene more forcefully before problems arose. In response, supervisory agencies, including the Federal Reserve and Federal Deposit Insurance Corporation, commissioned reviews that examined how supervisors’ actions might have contributed to, or mitigated, the failures. The reviews highlighted the important role that bank supervisors can play in fostering a stable banking system. In this post, we draw on our recent paper providing a critical review and summary of the empirical and theoretical literature on bank supervision to highlight what that literature tells us about the impact of supervision on supervised banks, on the banking industry and on the broader economy.  

December 19, 2023

Dropping Like a Stone: ON RRP Take‑up in the Second Half of 2023

Decorative photo of tall buildings with bank sign and spreadsheet overlay.

Take-up at the Overnight Reverse Repo Facility (ON RRP) has halved over the past six months, declining by more than $1 trillion since June 2023. This steady decrease follows a rapid increase from close to zero in early 2021 to $2.2 trillion in December 2022, and a period of relatively stable balances during the first half of 2023. In this post, we interpret the recent drop in ON RRP take-up through the lens of the channels that we identify in our recent Staff Report as driving its initial increase.

December 18, 2023

Hey, Economist! Outgoing Advisor Antoine Martin Reflects on How His New York Fed Perch Has Shaped His Work

Portrait of Antoine Martin

Antoine Martin, an economist and financial stability advisor in the New York Fed’s Research and Statistics Group, will soon take up a new post at the Swiss National Bank (SNB), as head of its third department covering money markets/foreign exchange (FX). In that role, Martin, who is originally from Switzerland, also becomes one of three members of that central bank’s rate-setting governing board. Readers of Liberty Street Economics will be familiar with his byline, as he has written more than sixty posts presenting new research findings and policy analysis, all with an eye for breaking down the most complicated topics in clear terms. He took a few questions from publications editor Anna Snider about his experiences and future plans as he prepares to move on.

August 14, 2023

The Federal Reserve’s Two Key Rates: Similar but Not the Same?

photo of the federal reserve building in Washington DC.

Since the global financial crisis, the Federal Reserve has relied on two main rates to implement monetary policy—the rate paid on reserve balances (IORB rate) and the rate offered at the overnight reverse repo facility (ON RRP rate). In this post, we explore how these tools steer the federal funds rate within the Federal Reserve’s target range and how effective they have been at supporting rate control.

May 11, 2023

Bank Funding during the Current Monetary Policy Tightening Cycle

decorative photo: image of the outside of a silicon valley bank building.

Recent events have highlighted the importance of understanding the distribution and composition of funding across banks. Market participants have been paying particular attention to the overall decline of deposit funding in the U.S. banking system as well as the reallocation of deposits within the banking sector. In this post, we describe changes in bank funding structure since the onset of monetary policy tightening, with a particular focus on developments through March 2023.

April 3, 2023

Monetary Policy Transmission and the Size of the Money Market Fund Industry: An Update

photo: The Marriner S. Eccles Federal Reserve building in Washington, D.C. Photographer: Stefani Reynolds/Bloomberg

The size of the money market fund (MMF) industry co-moves with the monetary policy cycle. In a post published in 2019, we showed that this co-movement is likely due to the stronger response of MMF yields to monetary policy tightening relative to bank deposit rates, combined with MMF shares and bank deposits being close substitutes from an investor’s perspective. In this post, we update the analysis and zoom in to the current monetary policy tightening by the Federal Reserve.

January 17, 2023

The Recent Rise in Discount Window Borrowing

Photo of Federal Reserve building in Washington DC

The Federal Reserve’s primary credit program—offered through its “discount window” (DW)—provides temporary short-term funding to fundamentally sound banks. Historically, loan activity has been low during normal times due to a variety of factors, including the DW’s status as a back-up source of liquidity with a relatively punitive interest rate, the stigma attached to DW borrowing from the central bank, and, since 2008, elevated levels of reserves in the banking system. However, beginning in 2022, DW borrowing under the primary credit program increased notably in comparison to past years. In this post, we examine the factors that may have contributed to this recent trend.

December 22, 2022

Supply Chains, Student Debt, and Stablecoins—The Top 5 Liberty Street Economics Posts of 2022

“Kitchen table” issues were on the minds of our readers in 2022, though what was labeled as such was perhaps a bit broader than in the past. Supply chains—now firmly placed on the radar of Main Street—were the subject of the year’s top post by number of page views and accounted for three of the top five (we’ll consider them as one for this roundup). Student debt forgiveness and inflation were also in the news, drawing readers to our preview of various possibilities for the (subsequently announced) federal student loan forgiveness program and a quarterly update of a New York Fed economic forecast model. Posts on more technical topics were popular as well, including an update on the Federal Reserve’s balance sheet “runoff” and a discussion of stablecoins. Underscoring their broad appeal, the year’s top two posts rank among the top five in the history of Liberty Street, which dates back to 2011. Read on to see which posts resonated most with readers. 

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