The Fed: Cutting through the BS

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The US central bank moving towards the end of its balance sheet unwind

Fed decides on floor system, paving way for balance sheet decision At the January Federal Open Market Committee (FOMC) meeting, the Federal Reserve (Fed) announced that it had finally come to a decision about the long-term nature of its monetary operations framework. The Fed announced that it would maintain a “floor”, rather than a “corridor” system. The Fed operated a “corridor” system to manage short-term rates prior to the financial crisis. With this method, it maintained system reserves just below the level of absolute demand. This forced commercial banks to borrow from the Fed for liquidity, at rates of its choosing. This was how it implemented its policy rate.