Monetary Policy with Abundant Liquidity: A New Operating Framework for the Federal Reserve

Author
Joseph E. Gagnon, Brian Sack
Content Type
Policy Brief
Institution
Peterson Institute for International Economics
Abstract
The dramatic increase in the Federal Reserve's balance sheet since 2009 has attracted the attention of economists, pundits, and ordinary citizens. The amount of assets held by the Fed recently crossed $4 trillion and will likely continue to rise to a peak of about $4.5 trillion. This run-up in asset holdings has resulted from the Fed's large-scale asset purchase programs, which were intended to support economic growth. However, a side-effect of these asset purchases is the creation of unprecedented amounts of liquidity in the financial system.
Topic
Economics, International Trade and Finance, Markets, Monetary Policy
Political Geography
United States