Sentences with phrase «interest on bank reserves»

This is due to its ability to pay interest on bank reserves.

Meanwhile, Bernanke has made it clear that the most important tool of the Fed during the interim will not be liquidation of these securities, but instead the payment of interest on bank reserves.

During the interim, the Federal Reserve indicates that it expects to limit the extent to which banks lend out the base money created in Step 1, through a policy of paying interest on bank reserve balances.

At TSI over the past year and at the TSI Blog two months ago I've made the point that the Fed gave itself the ability to pay interest on bank reserves so that the Fed Funds Rate (FFR) could be raised without the need to shrink bank reserves and the economy - wide money supply.

This is hardly surprising, given that the Fed began paying interest on bank reserves in October 2008 — a move designed to encourage banks to build up excess reserves, instead of increasing lending.

Factors such as the Fed choosing to pay interest on bank reserve deposits, the large cash holdings of big firms, and the persistent regime uncertainty that makes lending / investing seem particularly risky these days can together explain the reluctance of the banks to turn the monetary base into money via the multiplier process.

The purpose of this post is to point out that while the payment of interest on bank reserves is now the Fed's primary tool for implementing rate hikes, there are two other tools that the Fed will use over the years ahead in its efforts to manipulate short - term US interest rates and distort the economy.

So on October 6th out came the hook, consisting of the Fed's offer to start paying interest on bank reserves.

Consequently, on the same day that it announced its plan to pay interest on bank reserves, the Fed at last relented by cutting its rate target to 1.5 percent.

Finally, since October 2008, the Fed has been paying interest on bank reserves, at rates generally exceeding the yield on Treasury securities, thereby giving them reason to favor cash reserves over government securities for all their liquidity needs.

In practice, monetary policy conducted by paying interest on bank reserves is untested.