Federal Reserve Chairman Ben S. Bernanke said the Fed will raise the interest rate on excess reserves as its primary tool for tightening monetary policy rather than selling assets from its balance sheet.
“The principal tool that we contemplate is the interest rate paid on excess reserves,” Bernanke said today in response to audience questions at a conference in Stone Mountain, Georgia. During a tightening, money market rates will probably stay close to the interest rate on excess reserves, he said.
The Fed chairman didn’t comment on the timing of any Fed effort to withdraw accommodation.
“We have said in our existing exit principles we may sell assets in a steady way,” he said. Still, “asset sales are late in the process and not meant to be the principal tool of policy normalization.”
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