The Fed’s “Ample-Reserves” Approach to Implementing Monetary Policy
41 Pages Posted: 18 May 2020
Date Written: February 27, 2020
We describe the Federal Reserve’s (the Fed’s) approach to implementing monetary policy in an ample-reserves regime. We use a stylized model to explain the factors the Fed considers and the tools it uses to ensure interest rate control when the quantity of reserves is ample. Then, we take a close look at the Fed’s experience operating in this regime in the post-crisis period, both as it has raised and lowered its policy rate. Looking ahead, we highlight some considerations relevant for maintaining a level of reserves consistent with the efficient and effective implementation of monetary policy, and conclude with an overview of the benefits of an ample-reserves regime. This primer is intended to enhance discussions and understanding of the Fed’s actions and communications regarding monetary policy implementation, as many resources on this topic may be out of date given the recent evolution of the policy environment.
Keywords: Monetary policy implementation; Reserve balances; Ample-reserves regime; Administered rates; Interest on reserves; Open market operations
JEL Classification: E58; E52; E43
Suggested Citation: Suggested Citation