199 posts on "Monetary Policy"
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.
July 11, 2018
Size Is Not All: Distribution of Bank Reserves and Fed Funds Dynamics
As a consequence of the Federal Reserve’s large-scale asset purchases from 2008-14, banks’ reserve balances at the Fed have increased dramatically, rising from $10 billion in March 2008 to more than $2 trillion currently. In that new environment of abundant reserves, the FOMC put in place a framework for controlling the fed funds rate, using the interest rate that it offered to banks and a different, lower interest rate that it offered to non-banks (and banks). Now that the Fed has begun to gradually reduce its asset holdings, aggregate reserves are shrinking as well, and an important question becomes: How does a change in the level of aggregate reserves affect trading in the fed funds market? In our recent paper, we show that the answer depends not just on the aggregate size of reserve balances, as is sometimes assumed, but also on how reserves are distributed among banks. In particular, we show that a measure of the typical trade in the market known as the effective fed funds rate (EFFR) could rise above the rate paid on banks’ reserve balances if reserves remain heavily concentrated at just a few banks.
June 1, 2018
Hey, Economist! Outgoing New York Fed President Bill Dudley on FOMC Preparation and Thinking Like an Economist
Bill Dudley will soon turn over the keys to the vault—so to speak. But before his tenure in office ends after nine years as president of the New York Fed, Liberty Street Economics caught up with him to capture his parting reflections on economic research, FOMC preparation, and leadership. Publications editor Trevor Delaney recently caught up with Dudley.
February 9, 2018
Hey, Economist! What Do Cryptocurrencies Have to Do with Trust?
Bitcoin and other “cryptocurrencies” have been much in the news lately, in part because of their wild gyrations in value. Michael Lee and Antoine Martin, economists in the New York Fed’s Money and Payment Studies function, have been following cryptocurrencies and agreed to answer some questions about digital money.
Posted at 7:00 am in Banks, Central Bank, Cryptocurrencies, Financial Markets, Hey, Economist!, Monetary Policy | Permalink
February 7, 2018
A DSGE Perspective on Safety, Liquidity, and Low Interest Rates
Marco Del Negro, Domenico Giannone, Marc Giannoni, Abhi Gupta, Pearl Li, and Andrea Tambalotti Third of three posts The preceding two posts in this series documented that interest rates on safe and liquid assets, such as U.S. Treasury securities, have declined significantly in the past twenty years. Of course, short-term interest rates in the United […]
February 6, 2018
A Time‑Series Perspective on Safety, Liquidity, and Low Interest Rates
Brandyn Bok, Marco Del Negro, Domenico Giannone, Marc Giannoni, and Andrea Tambalotti Second of three posts The previous post in this series discussed several possible explanations for the trend decline in U.S. real interest rates since the late 1990s. We noted that while interest rates have generally come down over the past two decades, this […]
February 5, 2018
A New Perspective on Low Interest Rates
Marco Del Negro, Domenico Giannone, Marc Giannoni, and Andrea Tambalotti First of three posts Interest rates in the United States have remained at historically low levels for many years. This series of posts explores the forces behind the persistence of low rates. We briefly discuss some of the explanations advanced in the academic literature, and […]
Posted at 7:00 am in Liquidity, Macroeconomics, Monetary Policy, Treasury | Permalink | Comments (2)
January 9, 2018
Fiscal Implications of the Federal Reserve’s Balance Sheet Normalization
In the wake of the global financial crisis, the Federal Reserve dramatically increased the size of its balance sheet—from about $900 billion at the end of 2007 to about $4.5 trillion today. At its September 2017 meeting, the Federal Open Market Committee (FOMC) announced that—effective October 2017—it would initiate the balance sheet normalization program described in the June 2017 addendum to the FOMC’s Policy Normalization Principles and Plans.
November 30, 2017
How Much Is Priced In? Market Expectations for FOMC Rate Hikes from Different Angles
It is essential for policymakers and financial market participants to understand market expectations for the path of future policy rates because these expectations can have important implications for financial markets and the broader economy. In this post—which is meant to complement prior Liberty Street Economics posts, including Crump et al. (2014a, 2014b ) and Brodsky et al. (2016a, 2016b)—we offer some insights into estimating and interpreting market expectations for increases in the federal funds target range at upcoming meetings of the Federal Open Market Committee (FOMC).
November 28, 2017
The New York Fed DSGE Model Forecast–November 2017
This post presents our quarterly update of the economic forecasts generated by the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (DSGE) model. We describe very briefly our forecast and its change since August 2017.
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