The Federal Reserve held interest rates steady and released a statement on 1 August that made only minor changes to reflect the more upbeat U.S. economy since the Fed’s June meeting. Despite the lack of surprises, however, we don’t think investors should write off the meeting just yet: The more interesting aspect may well come later ‒ when the meeting minutes are revealed in a few weeks.
There is a strong chance that at this meeting the Federal Open Markets Committee (FOMC) began more formal discussions of its longer-term monetary policy implementation framework, specifically whether to continue to implement monetary policy through the “floor” system, which uses the interest that the Fed pays on bank’s excess reserve balances (IOER) to control the fed funds rate. This is important because maintaining the floor system would require the Fed to maintain a bigger balance sheet than it otherwise would have.
Latest posts by Alfonso Esparza (see all)