In discussing why I view the framework as effective, it’s helpful to start by explaining what it means for the tools to work well. I think about this issue through three lenses: interest rate control, avoiding unintended impact on the structure of the financial system, and avoiding financial instability...
It is of great importance that the public is confident that the federal funds rate will be, on average over time, within the target range set forth by the FOMC, and that other money market rates will continue to move closely with changes in the federal funds rate...
A second lens for evaluating the operational framework is the extent to which it avoids creating incentives that might result in undesirable changes in the structure of the financial system. This means that the framework shouldn’t have lasting unintended effects on how people invest their money or on how financial institutions interact with each other...
In particular, the framework shouldn’t create a risk that, in times of stress, money market lenders will rapidly disintermediate their usual counterparties and come to the Federal Reserve instead, such as through the ON RRP facility.