NY Fed's Perli Says Monetary Policy Toolkit Working Very Well

The Federal Reserve's monetary policy control toolkit continues to work very effectively, according to Roberto Perli, the New York Fed official responsible for implementing short-term interest rate policy for the central bank.

"We have maintained very strong interest rate control, we have kept reserves within the ample range, and our Treasury bill purchases have run smoothly," Perli said on Tuesday, Sept. 22, in closing remarks at a New York Fed event on Treasury market issues.

Perli holds a technical but consequential post. As manager of the New York Fed's System Open Market Account, he leads the technical implementation of monetary policy aimed at achieving the Fed's employment and inflation mandates. His assessment carries weight because it comes from the desk that actually executes the central bank's rate control operations.

His verdict on the toolkit was unambiguous. Interest rate control is very strong. Reserves remain within the ample range. Treasury bill purchases have run smoothly.

The comments also addressed the Fed's recent pause in actions to add liquidity to the financial system. That pause is not a preset course, Perli indicated, suggesting the Fed could resume buying Treasury bills if it judged that market liquidity needed support. So-called Reserve Management Purchases of Treasury bills, he said, will be adapted to market liquidity needs.

Perli framed the current halt in buying as a routine operational decision rather than a policy shift. "The recent decisions to set them at zero are no different in spirit than any of the other decisions the Desk has made since RMPs started in December of last year," he said.

The background to that decision matters for markets. The Fed had been buying bills in large quantities to bolster market liquidity levels and to ensure firm control over the federal funds target rate range, the institution's main tool for achieving its policy goals. It stopped buying recently after concluding the market had the needed amount of liquidity.

Perli was explicit on one point that market participants sometimes misread: the buying was technical in nature and was not designed to provide stimulus, even though the purchases increased the overall size of the Fed's balance sheet.

On the mechanics of the program, Perli said the New York Fed has a handle on the factors that govern the RMPs. The "process for forecasting reserves is robust and generally quite accurate," he said. He added: "Forecast misses over the past four years represent a very small fraction of total reserves supply and are easily accommodated by our ample reserves framework."

That forecasting record is central to the framework's credibility. The Fed operates under an ample reserves regime, meaning it supplies enough reserves that banks have no incentive to bid aggressively for short-term funding, allowing the desk to steer the federal funds rate within its target range. Small forecasting errors, in Perli's telling, pose no threat to that setup.

Perli also touched on market infrastructure. "Strictly from a monetary policy implementation perspective, offering a centrally cleared version of our standing repo operations would offer some clear benefits," he said. The standing repo facility lets eligible counterparties borrow reserves against collateral; a centrally cleared version could reshape how those operations function in practice.

Taken together, the remarks signal continuity. The desk has paused bill purchases because liquidity is sufficient, not because the program has ended, and the toolkit that has kept the funds rate under firm control remains, in Perli's judgment, in fine working order. If market liquidity conditions tighten, the Fed has left itself room to restart Reserve Management Purchases at any time.