Given the uncertainty and potential costs associated with large-scale asset sales, the FOMC instead decided to begin removing monetary policy accommodation primarily by adjusting short-term interest rates rather than by actively managing its asset holdings.
13 That strategy – raising short-term interest rates once the recovery was sufficiently advanced while maintaining a relatively large balance sheet and plentiful bank reserves – depended on our ability to pay interest on excess reserves. Where do we go from here? What does the future hold for the Fed’s toolkit?