New York Fed: The Fed's balance sheet is a key tool for monetary policy and financial stability

On August 6, Jinshi data, the New York Fed published an article on Tuesday stating that the Fed’s balance sheet is a “key tool” used to support the FOMC’s monetary policy goals and to “rarely support financial stability.” The Fed primarily sets its monetary policy stance by adjusting the target range for the federal funds interest rate, but the FOMC has also previously helped alleviate overall financial conditions by purchasing U.S. Treasuries and Mortgage-Backed Securities (MBS), especially when the interest rate is near zero. Such purchases have also been used to address market dysfunction, such as during the disruption of the financial markets by the COVID-19 pandemic in March 2020. Christian Cabanilla, Eric LeSueur, and Josh Younger of the New York Fed wrote that the FOMC also instructed the Fed to reduce the scale and holdings of its balance sheet to a level “consistent with the effective and efficient implementation of monetary policy under an abundant reserve regime.”