Observations on Implementing Monetary Policy in an Ample-Reserves Regime
Which interest rate should the Fed target?
Bill Dudley, former President of the Federal Reserve Bank of New York, notes:
“In recent years, though, the federal funds rate has become less relevant. For one, the Fed’s securities purchases — known as quantitative easing — have left banks with ample excess reserves, on which the central bank now pays interest. So banks no longer have much need to borrow or lend federal funds. This has caused the market to shrink significantly. It now consists largely of lending from institutions that aren’t allowed to earn interest on cash balances held at the Fed — such as Fannie Mae and Freddie Mac — to banks that are. So the market is not only smaller, but has also changed in a fundamental way.”
The Fed's IOER Experiment May Already Be Reaching Its Limits
Related:
https://www.nationalreview.com/2019/04/federal-reserve-balance-sheet-policy/