Balance sheet normalisation has put upward pressure on borrowing costs – Kansas Fed


Borrowing costs may move higher relative to the interest rate paid on excess reserves (IOER), even if reserves balances remain plentiful, a senior economist from the Federal Reserve Bank of Kansas says in a new paper.

Since the 2008 financial crisis, the Fed has controlled borrowing costs by changing the IOER. In recent times borrowing costs, given by the effective federal funds rate, have gradually moved higher relative to the IOER, and the spread between the two is now zero. In the paper,

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