Fed’s Fisher Says New Rate Tools Passed Test

New financial tools meant to help the Federal Reserve pull off its historic interest rate hike last month have worked, easing some internal concerns at the U.S. central bank, the Fed’s vice chairman said on Sunday.

“One possible concern about our unconventional policies has eased recently, as the Fed’s normalization tools proved effective in raising the federal funds rate following our meeting two-and-a-half weeks ago,” Stanley Fischer, the Fed’s second in command, told an American Economic Association conference.

“Of course these are early days yet,” and if issues do arise, the Fed is ready to address them, added Fischer, a close ally of Fed Chair Janet Yellen.

The Fed tightened monetary policy for the first time in nearly a decade last month. To lift rates from near-zero, it relied on a relatively new rate on excess bank reserves and on a lightly tested reverse repurchase (repo) facility to mop up some of the $2.6 trillion in excess reserves in financial markets.

The liftoff, on Dec. 17, boosted the U.S. policy rate into its new target range of 0.25-0.5 percent.

A key topic at the conference was the so-called equilibrium real interest rate: the level of borrowing costs associated with stable inflation and full employment.

via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, he established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza