Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

It would not surprise me at all if, when we are finished with this process—I hope over the next six weeks as we go through a couple more reserve maintenance period rounds— that that margin might be zero and we might see the federal funds rate trading right on top of the interest rate on reserves. But we are going to have to see. I think our presumption at the current time would be to recommend to the Board next round to narrow that spread further—it is 35 basis points today. Another thing that we don’t know is how much learning is going to go on by banks. So the selling of fed funds below the interest rate on reserves is not just the GSEs; it is also banks, and so it’s a little hard to understand exactly why they’re doing that unless the leverage ratio is what’s driving that behavior. Maybe they are just not very well informed or they haven’t gotten their first check for the interest rate compensation, so I think it’s a little too soon to be certain about how they’re going to behave going forward. You had one other question about the policy reason for excluding the GSEs.

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