For example, the difference between customer-to-dealer and interdealer repo rates has been quite volatile in recent months, apparently because of growth in dealer balance sheet costs. The road ahead To summarize, in the period since liftoff, we have achieved excellent control over the effective federal funds rate, and we have done so while avoiding unintended effects on the financial system or financial stability. The policy rate increase has passed through to other money market rates, suggesting that the increase is affecting broader financial conditions as expected and intended. We still have a lot of work to do, both to observe ongoing structural changes in financial markets and to formulate and implement any necessary response in the Federal Reserve’s monetary policy operations. I believe we have thoughtfully considered these uncertainties, and I am confident that we have appropriate policy tools available to respond as necessary to them. 10  BIS central bankers’ speeches  Thank you. I would be happy to take a few questions. 1  I would like to thank James Egelhof and Patricia Zobel for their excellent assistance in the preparation of these remarks, and colleagues in the Federal Reserve System for numerous insightful comments and suggestions. In addition, I would like to acknowledge the leadership of James Clouse, William English, and Lorie Logan in the construction of this new framework and James McAndrews for his intellectual leadership on U.S. money markets. 2  For more details on implementation frameworks, see for example Ihrig, Meade, and Weinbach (2015).
BIS central bankers’ speeches  11  16  In July 2015, the FOMC announced that changes in administered rates would go into effect on the day after its policy decision. Otherwise, the intraday timing of a policy change could result in various operations being conducted with inconsistent settings. 17  ON RRP is currently offered to a broad set of counterparties; these counterparties make up a fairly large proportion of the lending community in overnight money markets. By offering this large group of counterparties an alternative, risk-free investment option, ON RRP should improve lenders’ market power and help keep money market rates near or above the ON RRP offered rate. Even if money markets were perfectly competitive, ON RRP would likely still be effective at supporting the floor provided by IOR, for example through addressing segmentation between secured and unsecured money markets. 18  The preservation of enough activity in the federal funds market to maintain the viability of the effective federal funds rate was one component of this. 19  A final operational change to improve the transmission of IOR into market rates was a revision to the interest calculation methodology that became effective in July 2015. As originally implemented, interest on excess reserves (IOER) was paid on each bank’s average balances over a two-week maintenance period, at the average interest rate.