Introduction
I want to thank the Money Marketeers of New York University for inviting me to speak again today. These events provide a valuable forum for discussing the intersection of monetary policy implementation and money markets.
When I last spoke to this group in December 2020, there had been an historically rapid expansion of the Federal Reserve's balance sheet associated with actions taken in response to the COVID-19 shock. These measures were highly effective at restoring market functioning and fostering accommodative financial conditions, helping the U.S. economy recover from the pandemic-related downturn. At the same time, they generated a significant increase in reserves supplied to the banking system. This year, even as the Federal Reserve's balance sheet expanded at a more gradual overall pace, growth in Federal Reserve liabilities held by market participants-both in the form of bank reserves and in overnight reverse repo (ON RRP) facility balances-accelerated, and money market conditions shifted notably.
In my last talk, I suggested that one of the key advantages of the Federal Open Market Committee's (FOMC's) ample reserves operational framework is its flexibility, allowing monetary policy to be implemented efficiently and effectively across a range of environments. Today, I would like to share some observations on how the framework adapted to much higher levels of liquidity this year and is working as intended to support control over the federal funds rate and other short-term interest rates. I also want to highlight changes the FOMC has made in recent months to ensure the implementation framework continues to be effective through different environments, even on occasions when shocks disrupt markets.