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

I just want to add one other point. One of the reasons this is happening is that we’re communicating so well and we have a lot of credibility. Every desk manager and every banker knows pretty much when rates are going to move, and we give them the luxury of a two-week period in which to meet their required reserves. So when a bank has two weeks to meet that requirement and can save 25 basis points on the cost of their reserves, management is going to pick the time to do it. They would do the same if they were expecting us to drop rates in a given maintenance period. So part of the problem is the luxury of the time they have—the two-week maintenance period—to meet their average for required reserves. It may be worthwhile to look at the length of the maintenance period again as part of this review because the whole process of reserve management has really changed. This is a profit center operation in a bank. They’re acting totally rationally, and I just don’t want to jeopardize the credibility that we have in the market now.

Another question is how much the quarterly funding of the Treasury entered into the picture in the recent period. Its occurrence in the same maintenance period probably also created some of this unusual noise. In any event, I think we finally have gotten a lot of credibility in the market, and we need to be really careful what we do. It may be that we ought to go back and look at the fact that, especially in this period, banks have much lower reserve levels than they’ve ever carried—they avoid reserves. They have such a low level of reserves, and there’s a large amount of movement that the reserve desk can do every day in a bank. That’s another issue, because banks are doing whatever they can to avoid reserves.

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