The Fed’s December transcript reveals some interesting foresight by Philadelphia Fed president Charles Plosser in discussions about how the Fed should communicate its regime shift (i.e. that it was moving away from targeting the Fed Funds rate towards using base money, balance sheet and other quantitative measures as its primary tools).
In the transcript, Plosser refers to the fact that near-zero rates and unconventional policy will eventually have to be overturned, and that this could be a tricky challenge for the Fed when the time comes. Nevertheless, he also notes that when it comes to the Fed’s balance sheet, the introduction of interest on excess reserves (a.k.a a floor system) means the Fed can in theory continue to control rates without shrinking its balance sheet at all for some time. Read more