Since the June technical adjustment, rates on federal funds transactions have continued to edge higher in the range, and most recently the EFFR has risen to the IOR rate, or five basis points below the top of the target range. 27 It is possible that the EFFR could fluctuate around the IOR rate or exceed the IOR rate. However, I don’t believe that this upward pressure on the EFFR signals that we’ve reached balance sheet normalization or that we are at the “steep” portion of the reserve demand curve, where reserves are scarce. This is supported by the lack of evidence across a range of indicators signaling aggregate reserve scarcity. Let me be clear: Observing the EFFR and other rates above the IOR rate is not a sufficient condition for reserve scarcity. 28 In the last few days, even amid upward pressure in overnight funding rates, we still have not seen the range of signs I described earlier that would indicate reserve scarcity, such as significant 25  See Minutes of the Federal Open Market Committee, March 17 – 18, 2015. Recall that before liftoff, the main concern was that rates would fall below the bottom of the target range. Thus, policymakers thought term draining operations might be helpful.
Finally, regarding fiscal policy, it is assumed that the consistent framework outlined in the Medium Term Program (MTP) will be implemented and further enhanced by institutional and structural measures. In other words, it is assumed that no public price/tax adjustments would  14  BIS Review 31/2010  be made to lead to unpredictable volatilities in inflation and administered prices would be set in line with inflation targets over the next three years. Moreover, it is assumed that the fiscal stance will remain expansionary – but less so than in 2009 – throughout 2010, and subsequently fiscal tightening would be gradually adopted starting from 2011. In this respect, it is envisaged that the rising debt-to-GDP ratios would reverse their course steadily starting from 2011, and hence the risk premium would not display any significant changes throughout the forecast horizon. Distinguished Guests and Members of the Press, Against this background, assuming policy rates are kept constant for a long period followed by limited rises thereafter, with policy rates staying at single digits throughout the three-year forecast horizon, the medium-term forecasts suggest that, with 70 percent probability, inflation will be between 5.5 and 8.3 percent with a mid-point of 6.9 percent at end-2010; and between 3.4 and 7.0 percent with a mid-point of 5.2 percent by the end of 2011. Furthermore, inflation is expected to decline to 4.9 percent by the end of 2012 (Figure 34).