Lorie K Logan: A return to operating with abundant reserves

Remarks (via videoconference) by Ms Lorie K Logan, Executive Vice President in the Markets Group of the Federal Reserve Bank of New York, before the Money Marketeers of New York University, 1 December 2020.

The views expressed in this speech are those of the speaker and not the view of the BIS.

As prepared for delivery

Thank you to the Money Marketeers of New York University for inviting me to speak today.

Money markets are vital to the flow of credit to U.S. households and businesses, and central to the Federal Reserve's monetary policy implementation. For nearly 75 years, the Money Marketeers has been an essential forum for discussing critical issues related to money markets. I am pleased that this group is continuing to meet virtually in these challenging times, allowing this important dialogue to continue. I look forward to our discussion.

When I last spoke with this group in April 2019, I talked about the recent decision by the Federal Open Market Committee (FOMC) to maintain an ample reserves regime as its long-run framework for implementing monetary policy. An ample reserves regime is a version of a "floor" system in which reserves are supplied in sufficient quantity to ensure that control over the federal funds rate and other short-term interest rates is exercised primarily through the setting of the Federal Reserve's administered rates. At the time, I noted two key benefits that the FOMC highlighted in choosing this framework. First, it provides effective control over short-term interest rates in a broad range of environments, including during periods when large amounts of liquidity are needed to relieve stress in the financial system or large-scale asset purchases are required to support the U.S. economy.³ And, second, from an operational perspective, a steady-state ample reserves regime can be simple and efficient to operate.