The Fed’s “Ample-Reserves” Approach to Implementing Monetary Policy

41 Pages Posted: 18 May 2020

See all articles by Jane E. Ihrig

Jane E. Ihrig

Board of Governors of the Federal Reserve System

Zeynep Senyuz

Board of Governors of the Federal Reserve System

Gretchen C. Weinbach

Board of Governors of the Federal Reserve System

Date Written: February 27, 2020

Abstract

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the Fed’s actions and communications regarding monetary policy implementation, as many resources on this topic may be out of date given the recent evolution of the policy environment.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

Ihrig, Jane E. and Senyuz, Zeynep and Weinbach, Gretchen Cope, The Fed’s “Ample-Reserves” Approach to Implementing Monetary Policy (February 27, 2020). FEDS Working Paper No. 2020-022 https://doi.org/10.17016/FEDS.2020.022 , Available at SSRN: https://ssrn.com/abstract=3601274

Jane E. Ihrig

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-3372 (Phone)
202-736-5638 (Fax)

Zeynep Senyuz

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Gretchen Cope Weinbach (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2841 (Phone)

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