The Federal Open Market Committee and the Fed Board of Governors discussed tools that could be used in the "eventual normalization" of monetary policy, although the talks were considered "prudent planning," not a sign of impending action, according to minutes of the FOMC meeting of April 29 and 30, released Wednesday.
Tools discussed included the rate of interest paid on excess reserve balances, fixed-rate overnight
reverse repurchase (ON RRP) operations, term reverse repurchase agreements, and the Term Deposit Facility (TDF).
In addition to the implications of each tool for the markets, operational testing options were pondered.
Staff thought that discussing options now would allow the Fed to communicate approaches to policy normalization "well before the first steps in normalizing policy become appropriate. Early communication, in turn, would enhance the clarity and credibility of monetary policy and help promote the achievement of the Committee's statutory objectives."
"Because the Federal Reserve has not previously tightened the stance of policy while holding a large balance sheet, most participants judged that the Committee should consider a range of options and be prepared to adjust the mix of its policy tools as warranted."
