188 posts on "Monetary Policy"
September 4, 2019
The Transmission of Monetary Policy and the Sophistication of Money Market Fund Investors
In December 2015, the Federal Reserve tightened monetary policy for the first time in almost ten years and, over the following three years, it raised interest rates eight more times, increasing the target range for the federal funds rate from 0-25 basis points (bps) to 225-250 bps. To what extent are changes in the fed funds rate transmitted to cash investors, and are there differences in the pass-through between retail and institutional investors? In this post, we describe the impact of recent rate increases on the yield paid by money market funds (MMFs) to their investors and show that the impact varies depending on investors’ sophistication.
Posted at 7:00 am in Federal Reserve, Financial Institutions, Financial Intermediation, Monetary Policy | Permalink | Comments (3)
July 8, 2019
From Policy Rates to Market Rates—Untangling the U.S. Dollar Funding Market
How do changes in the rate that the Federal Reserve pays on reserves held by depository institutions affect rates in money markets in which the Fed does not participate? Through which channels do changes in the so-called administered rates reach rates in onshore and offshore U.S. dollar money markets? In this post, we answer these questions with the help of an interactive map that guides us through the web of interconnected relationships between the Fed, key market players, and the various instruments in the U.S. dollar funding market, highlighting the linkages across the short-term financial products that form this market.
Posted at 7:00 am in Banks, Central Bank, Fed Funds, Federal Reserve, Monetary Policy, Repo | Permalink | Comments (5)
May 8, 2019
Ten Years Later—Did QE Work?
By November 2008, the Global Financial Crisis, which originated in the residential housing market and the shadow banking system, had begun to turn into a major recession, spurring the Federal Open Market Committee (FOMC) to initiate what we now refer to as quantitative easing (QE). In this blog post, we draw upon the empirical findings of post-crisis academic research–including our own work–to shed light on the question: Did QE work?
Posted at 7:00 am in Banks, Central Bank, Employment, Financial Markets, Monetary Policy | Permalink | Comments (7)
May 6, 2019
Selected Deposits and the OBFR
In this Liberty Street Economics post, Cipriani and coauthors discuss changes in the calculation of the Overnight Bank Funding Rate (OBFR), the reason for including selected deposits, and the likely impact of the change on the OBFR’s published value.
March 25, 2019
Deciphering Americans’ Views on Cryptocurrencies
Having witnessed the dramatic rise and fall in the value of cryptocurrencies over the past year, we wanted to learn more about what motivates people to participate in this market. To find out, we included a special set of questions in the May 2018 Survey of Consumer Expectations, a project of the New York Fed’s Center for Microeconomic Data. This blog post summarizes the results of that survey, shedding light on U.S. consumers’ depth of participation in cryptocurrencies and their motives for entering this new market.
Posted at 7:00 am in Banks, Credit, Cryptocurrencies, Financial Institutions, Financial Markets, Monetary Policy | Permalink
March 4, 2019
The Sensitivity of Long‑Term Interest Rates: A Tale of Two Frequencies
The sensitivity of long-term interest rates to short-term interest rates is a central feature of the yield curve. This post, which draws on our Staff Report, shows that long- and short-term rates co-move to a surprising extent at high frequencies (over daily or monthly periods). However, since 2000, they co-move far less at lower frequencies (over six months or a year). We discuss potential explanations for this finding and its implications for the transmission of monetary policy.
February 27, 2019
Global Trends in Interest Rates
Long-term government bond yields are at their lowest levels of the past 150 years in advanced economies. In this blog post, we argue that this low-interest-rate environment reflects secular global forces that have lowered real interest rates by about two percentage points over the past forty years. The magnitude of this decline has been nearly the same in all advanced economies, since their real interest rates have converged over this period. The key factors behind this development are an increase in demand for safety and liquidity among investors and a slowdown in global economic growth.
Posted at 7:00 am in Banks, Central Bank, Credit, Expectations, Federal Reserve, Financial Institutions, Financial Markets, Inflation, Liquidity, Macroeconomics, Monetary Policy, Treasury | Permalink | Comments (2)
November 26, 2018
The Pre‑FOMC Announcement Drift: More Recent Evidence
We had previously documented large excess returns on equities ahead of scheduled announcements of the Federal Open Market Committee (FOMC)—the Federal Reserve’s monetary policy-making body—between 1994 and 2011. This post updates our original analysis with more recent data. We find evidence of continued large excess returns during FOMC meetings, but only for those featuring a press conference by the Chair of the FOMC
August 8, 2018
How Do the Fed’s MBS Holdings Affect the Economy?
In our previous post, we discussed the meaning of the term “credit allocation” and how it relates to the Federal Reserve’s holdings of agency mortgage-backed securities (MBS). We concluded that the Fed’s MBS holdings do not pose significant credit risk but that the Fed does influence the relative market price of credit when it purchases agency MBS, and this indirectly influences decisions by investors. Today, we take the next step and discuss how the Fed’s MBS purchases affect the U.S. economy and, in particular, how the effect of MBS purchases can differ from the effect of purchases of Treasury securities.
August 6, 2018
How Do the Fed’s MBS Purchases Affect Credit Allocation?
It is sometimes said that the Federal Reserve should not engage in “credit allocation.” But what does credit allocation actually mean? And how do current Fed policies affect the allocation of credit? In this post, we describe two separate ideas often associated with credit allocation. The first idea is that the Fed should not take credit risk, which taxpayers would ultimately have to bear. The second idea is that the Fed’s actions should not influence the flow of credit to particular sectors. We consider whether the Fed’s holdings of agency mortgage-backed securities (MBS) could affect the allocation of credit. In a companion post, we discuss how the economic effects of the Fed’s MBS holdings compare with the economic effects of more traditional holdings.
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