New York Fed: The Fed's balance sheet is a key tool for monetary policy and financial stability

The New York Fed published an article on Tuesday saying that the Fed's balance sheet is a "key tool" used to support the FOMC's monetary policy goals and "support financial stability in rare circumstances." The Fed sets its monetary policy stance primarily by adjusting the target range for the federal funds rate, but the FOMC has previously helped ease overall financial conditions by purchasing U.S. Treasury bonds and agency mortgage-backed securities (MBS), especially when interest rates were around zero. Such purchases have also been used to address market dysfunctions, such as when the coronavirus pandemic disrupted financial markets in March 2020. The FOMC also instructed the Fed to reduce the size of its balance sheet and its holdings to "levels consistent with the efficient and effective implementation of monetary policy under an ample reserve mechanism," wrote Christian Cabanilla, Eric LeSueur and Josh Younger of the New York Fed. (Jin Shi)