In the past, the Federal Reserve’s Federal Open Market Committee (FOMC) has used three primary instruments in their implementation of monetary policy. Most recently, the Fed has used open-market operations and the discount window to achieve their goals. The Federal Reserve is considering changing its primary instrument to paying interest on reserves, a move that has been in place since October 2008.
The primary reason for shifting to paying reserves over allowing the free market to set interest rates, is to create a stable pool of liquidity at financial institutions. The “Interest on Excess Reserves” or IOER instrument might be used instead of the Federal Funds rate if the Fed cannot or is unwilling to remove excess reserves from the banking system. Trading has declined in the Federal Funds market.
Questions you might try to answer:
- Why is the FOMC considering changing their primary instrument at this time?
- How and when would the FOMC decide on returning to their previous instrument?
- Is there a permanent role for continued future use of the IOER instrument? If other countries have tried this instrument, what has their track record been?
The most significant change to monetary policy the Federal Open Market Committee (FOMC) is considering is the replacement of the Federal Funds rate with the Interest on Excess Reserves (IOER). So, why is the Federal Funds rate no longer an effective tool for monetary policy? The Open Market Trading Desk (Desk) at the Federal Reserve Bank in New York has come across great difficulties when trying to meet the target rate for the Federal Funds rate. This target set by the FOMC has increasingly become harder to match ever since the Federal Reserve injected over $1 trillion into the economy. This monetary expansion led to a huge increase in excess reserves. In turn, these excess reserves put intense pressure on the Federal Funds rate to fall, and so it did. To help raise the Federal Funds rate to a rate closer to the Federal Reserve’s target, the Desk can utilize the IOER. By using the IOER, the Desk can achieve a closer to acceptable rate, without completely altering the existing monetary policy and little risk for inflation. So, because the Federal Funds market is experiencing little trading (due to tons of excess reserves in banks), and thus has a low interest rate, the Federal Funds rate is not an effective monetary policy tool.
Well as of today the federal funds rate remains the target benchmark rate, not the interest rate on excess reserves. The FOMC has maintained that they will keep this rate at its record low, between 0-.25%. This is because the economy has not been getting any worse instead it has been strengthening a little more than before. The main reason the FOMC is considering switching to the IOER is then the fed funds rate “could trade with a spread to that rate” (Malpede). This could allow the fed to withdraw liquidity that was pumped into the economy during the crisis. So the question is if the FOMC did decide to switch to the IOER, when, if ever would they return to the fed funds rate? Well, according to Deborah Cunningham, chief investment officer of money markets at Federated Investors in Pittsburgh, “They are a little more positive on their tone on the economy in this statement. They seem to say we are climbing out of the depths.” The Fed said they will continue the low rates for an “extended period of time,” but with the outlook of the economy looking more positive traders know these rates will not hold. So in the meantime the fed may very well change to the IOER as the benchmark rate, but as the economy begins to really strengthen and get back to normal there will be no need to use the IOER because the liquidity issue for which it is meant to solve should be fixed by then. So the Fed more than likely would change back to the fed funds rate as the benchmark rate and according to traders and other financial institutions this could be in the latter half of 2011.
http://www.easy-forex.com/news/daily-reports-north-america/special-fx-report-fomc-meeting-wednesday-no-change-expected-20100126917.html
http://www.reuters.com/article/idUSTRE60Q69L20100127
-Andrew Flowers
Biggest challenge to the IOER is the fact that it needs to be higher than the Fed Funds target rate if the banks are to keep their excessive reserves at the Fed. If it isn’t, the whole plan can backfire and the banks can inject the money into the economy and create inflation. With the expected inflation rising (2), it is clear that the Fed is targeting a non-inflationary policy in order to provide a stable environment for economic growth. I think the need for this method will decline once the economy has responded positively. By that I mean when the housing market is on the upswing and lending has increased in volume. When the money multiplier (1) starts increasing dramatically, it could be a sign to start switching away from the IOER. Another difficult part seems to be steadily increasing the money supply instead of letting the banks run wild.
1) Economy and Financial Market Commentary by Jeffrey Schoenfeld
http://salsa.bbh.com/news/archives/attachments/wc/20091026.pdf
2)The Wall Street Journal Article http://online.wsj.com/article/SB10001424052748703521904574614651367337752.html
After dumping about $1 trillion into the economy Fed was trying to come up with a new strategy to avoid future inflation. And it did by switching from Federal Funds rate to Interest on Excess Reserves (IOER) as a new benchmark. According to this plan, banks will keep this money in reserves instead of lending it out. But as we know “banks’ principal business is lending, and the interest rate they can get on their loans is more important than the interest they might get on their reserves” (Meltzer) http://online.wsj.com/article/SB10001424052748704375604575023632319560448.html. Thus, what will be the interest rate that will encourage the banks to hold about $1 trillion above the required amount? This seems to be one of the crucial issues of the new plan. If the Fed fails to set the right rate on reserves and can’t keep them under control, then, it would probably raise the Federal Funds rate higher than is preferable. These actions jointly with Obama’s anti-growth policies can threaten the recovery (Foster) http://economy.nationaljournal.com/2009/08/the-fed-and-its-excess-reserve.php).
Because of the recent financial crisis billions of dollars have been pumped into the economy in order to keep interest rates low. The goal of moving billions of dollars into the economy is to create cheap money which in turn will increase lending and spur economic growth. A new problem has occurred due to so much money in the economy. The Federal Funds rate is no longer effective at controlling the money supply because individual corporations are offering lower interest rates than the Federal Reserve(2). Also, changing the money supply with buying bonds is not an option either as the interest rate needs to be kept low to encourage growth. The Federal Reserve now needs a new tool in order to try to reach the target Federal Funds rate. An idea is paying interest on excessive reserves or (IOER). According to the Federal Reserve, this tool will hopefully “help foster trading in the funds market at rates closer to the target rate” (1). Once the economy begins to pick up again the monetary base can be used to control the money supply in the economy. Once there are less excessive reserves in the economy the Federal Funds rate will return to normal market equilibrium
1) http://blogs.wsj.com/economics/2008/10/22/fed-to-pay-higher-interest-on-excess-reserves/tab/article/
2) http://www.frbatlanta.org/cenfis/pubscf/vn_interest_on_reserves.cfm
The issues of when and how to reduce the money supply to prevent excessive inflation while maintaining the flow of credit and lending still remain. There are also questions about how far the IOER will have to increase to keep banks from lending out their excess reserves once the economy rebounds. It may not be as simple as manipulating the monetary base at a single point and time.
The FOMC is considering switching from the Federal Funds Rate to the IOER because it believes that it will have better control over the IOER than the Federal Funds Rate. Before the Fed dumped 1 trillion into the economy, it could use open market operations to try and control the federal funds rate. “That mechanism broke down when the Fed started flooding the system with cash after the bankruptcy of Lehman Brothers to prevent a financial meltdown” (Lanman). A higher degree of control over the rate is thought to be necessary to prevent future periods of high inflation. If the Fed could offer a higher risk free rate to banks than they would receive lending in the money market, banks will generally chose the rate offered by the Fed. This will keep a lot of money out of the markets and reduce possible inflation. As of right now, January 31st 2010, the FOMC has decided to keep the Federal Funds Rate as it benchmark interest rate. It has justified this decision by citing, among many reasons, subdued inflation trends and stable inflation expectations (Kuna).
http://www.menafn.com/qn_news_story_s.asp?StoryId=1093300217
So as of right now, the threat of high inflation is not powerful enough to prompt a change.
As stated in previous postings, in order to help recover for our $1 trillion in excess reserves, the Fed proposed to use the IOER instead of the Fed Funds Interest Rate. However, in light of yesterday’s news, it seems as though the Fed will continue to use the Fed Funds Interest Rate for 6 more months (1). Despite much confusion many still believe increasing the IOER to .25 percent “would give banks an incentive to keep money parked at the Fed, rather than lend it” (1). In contrast, President Obama is planning to “take $30 billion from […] TARP, and lend it to community banks at minimal cost if they will lend it out to small businesses” (2). It seems as though there is a lot of confusion on what really to do in order to decrease our deficit. The IOER may prove to be beneficial and decrease our financial systems massive flow of cash. In addition, lending must occur in order for the public to have access to necessary funding.
(1) http://www.lasvegassun.com/news/2010/jan/30/fed-mulls-exit-plan-as-bernanke-awaits-a-2nd-term/
(2) http://www.ajc.com/business/small-businesses-small-bankers 286144.html?cxtype=rss_news_128746
The increase in excess reserves has caused pressure on the federal funds rate. Interest paying on excess reserves will achieve the operating target for the federal funds rate even without further use of other measures and in principle with any level of excess balances (1). This is a similar method to the Central Bank of England. The U.K. central bank’s benchmark interest rate, now at 0.5 percent, is the rate it pays on the reserves it holds for commercial banks (2). This is the lowest ever today as officials move closer to the limits of conventional monetary policy to fight the recession. Chancellor of the Exchequer Alistair Darling says the U.K. Treasury will need to play a bigger role in setting monetary policy if rates approach zero (3). Unfortunately as the central bank keeps cutting the costs of borrowing, the pound is dropping against the euro and unemployment is still increasing. From the experience of UK’s Central Bank, should the Fed use this instrument permanently or should it be used only in the circumstance of the current economic crisis?
1) http://www.newyorkfed.org/markets/ior_faq.html
2) http://www.bloomberg.com/apps/news?pid=20601087&sid=ap1qcx0RZev0&pos=3
3) http://www.bloomberg.com/apps/news?pid=20601087&sid=a7L5.ICtOED0&refer=home
As the FED switches away from the Fed Funds Rate to IOER as its main tool on controlling the money supply, we can expect to see banks holding more money at the FED, thus avoiding a burst of inflation. Some critics, such as Wall Street Journal’s Allan Meltzer [1], believe this measure will only postpone high inflation. He forgets, however, that with growth comes an increase in demand for money, which alleviates inflationary forces, as the augmented supply is absorbed by the market. There is data showing price stability, mainly the CPI [2], and evidence that banks will gladly hold money in reserves, as long as it pays interest. Also, in the current state of the economy, a little inflation (given that the supply of money is not entirely absorbed by demand or that banks decide to lend more in the near future) can help borrowers pay off their debt [3] and facilitate new loans that will finance investment and lead to growth. The final point I would like to make is that the FED should go back to targeting the Fed Funds Rate only when the economy has picked up and the injection of money in the market is not only pertinent, but also necessary.
[1] http://online.wsj.com/article/SB10001424052748704375604575023632319560448.html
[2] http://research.stlouisfed.org/fred2/series/CPILFESL?cid=9
[3] http://www.nytimes.com/2010/01/17/business/economy/17view.html?scp=1&sq=fed%20excess%20reserve&st=cse
The amendments by the Federal Reserve Board to Regulation D, which allowed the Fed to pay interest on excess reserves, were placed in effect on October 9th, 2008, so the policies had been implemented for the sole purpose of dealing with the special circumstances the American economy(1). So, in response to the question does the use of the IOER instrument have a permanent role for future use; the answer would be “yes,” but on a seldom basis. The large amounts of liquidity that were pumped into the economy have lead to the need for interest to be paid on excess reserves, but surges to liquidity on this large of a scale are rare and as the economy rebounds, GDP grows, and the excess supply of liquidity falls, the need for the IOER will decrease. Once the United States has rebounded from the recession, will the policy change to pre-October 2008 standards without IOER? No. It gives the Fed another tool to attack the issues of liquidity by influencing the demand for deposits. Other countries have had, for some time, systems in effect that offer similar incentives and pay interest on reserves, such as the European Central Bank(2) and The Bank of Canada(3), to successfully provide a floor for market rates.
(1) http://www.federalreserve.gov/newsevents/press/monetary/20081006a.htm
(2) http://www.ecb.int/mopo/implement/sf/html/index.en.html
(3) http://www.bankofcanada.ca/en/faq/faq_bank_monetary.html#6
I don’t think that lowering the Interest on Excess Reserves will have that much of an impact on increasing the bank’s lending.
Before this most recent economic downturn here in the US, the Federal Open Market Committee mainly used the Federal Funds Discount Rate to try and control the lending that occurred between banks. When the Treasury decided to buy up troubled assets from the banks, the TARP program for instance (CBO, 2009), they thought it would allow the banks to resume normal banking activities such as loaning their money out. But since all the people that the banks could loan to, are bad candidates for loans, as in they just defaulted on a loan or were in the process of defaulting, the banks can’t make loans. So these banks have all this fresh money with no good options to loan it out, so they keep it and hold it as excess reserves. This creates a problem because all these banks have money that they are sitting on, which means not many banks are in need of more money; this causes the interbank loans through the Federal Funds market to slow down. To stimulate more interbank trading the Fed lowers the Federal Funds rate from 5.25% in 2006 down to almost zero currently (Federal Open Market Committee, 2008), in hope that the banks will start trading, but the issue isn’t the cost of money, it’s the lack of need for money. So only when banks are involved in interbank trading, the Federal Funds Rate will have a controlling impact.
In October 2008, The Fed decided to pay interest on excess reserves (Altig, 2008) in hope to establish a lower bound on the federal funds rate by lessening the incentive for interbank trading at a rate much lower that of the interest rate paid on the excess reserves.
To help bring the US out of the recession, the Fed wants the money that the banks received to be used to give out new loans. One way to encourage this lending is to lower then interest paid on the bank’s excess reserves on deposit at the Fed. This will lower the amount of interest the banks are collecting and encourage them to choose alternative ways to make money, like lending it out. Unfortunately lowering the interest paid on excess reserves only encourages the banks to hold less on deposit with the Fed, it doesn’t necessarily force them to lend it out, they can choose just to hold on to it in their vault. This is what I’d expect to happen because the opportunities to give out loans just are not out there yet.
Works Cited
Altig, D. (2008, 10 07). “Why is the Fed Paying Interest on Excess Reserves?”. Retrieved 2 03, 2010, from Federal Reserve Bank of Atlanta: http://macroblog.typepad.com/macroblog/2008/10/why-is-the-fed.html
CBO. (2009). The Troubled Asses Relief Program: Report on Transactions Through December 31, 2008. CBO.
Federal Open Market Committee. (2008). FRB: Federal Open Market Committee, Statements and Minutes. New York: Board Of Governors of the Federal Reserve System.
I have mixed feelings about the new tool the Federal Reserve wants to use to help the economy recover. On one hand, I think this is a great idea based on the current financial crisis. When banks were becoming insolvent left and right and the Fed was, pumping a lot of money into economy to cushion the fall reserve at the Fed were not enough to save these banks. With this new tool banks will be able to safe guard themselves better against financial crisis like the one we are going through now. However, on the other hand if banks are keeping large amounts of money at the Fed instead of loaning money out to people how will the economy get back to a place it was at before? Once all the bad banks have been taken out of the economy the federal funds rate will once again be a valuable tool to be used.
According to Steve Liesman, the senior economics reporter for CNBC, the fed funds market is now seen as a “shadow of it’s former self.” One of the main reasons for the failure of the FOMC’s primary instrument for controlling open market operations Liesman attributed to the fact the “IOER has been pegged at 25 basis points but the Fed Funds rate fluctuates around 12 basis points.” Liesman points this out to be the case because “government sponsored entities such as Fannie Mae and Freddie Mac can’t earn the IRER,” which in turn drives down the Federal Fund rate when they are forced to take their excess cash there. I believe that the government should look into reversing the policy in place that prohibits these two organizations from earning IOER. If this is not a feasible solution then Fannie Mae and Freddie Mac should be giving a plausible alternative towards leaving their excess cash in the Federal Funds market so that they are not watering down the market and driving down its interest rates. This would then return some of the power to the FOMC by returning some of the certainty and power to their intended adjustments to the Federal Funds rate.
Liesman, Steve. “Liesman: A New Set of Fed Tea Leaves.” CNBC. 19 Jan. 2010. Web. 3 Feb. 2010. .
As it has been stated before in the blog the reason with FOMC is considering changing its main tool to interest rates on excess reserves is that the federal funds rate seems to be no longer an effective tool to stimulate the banks into loaning money to each other or new customers. The current rate of .25 percent could not get much lower and at such a low rate the FED seems to be backed into a corner because it simply cannot be lowered any further. Combined with that the banks are acting logically in the fact that they don’t want to loan any money to anyone because simply no new customers have the credit rating or collateral to qualify for loans. An additional interest rate would hopefully entice banks to loan money to each other and allow the FED to inflate the federal funds rate without really changing monetary policy. I don’t think this would need to be a long run problem because if the FFR goes back up to a point in which it becomes attractive to loan money for the banks than the additional interest rate on excess reserves would not be needed.
http://www.newyorkfed.org/markets/ior_faq.html
It’s hard to see the future outcome but the FOMC changing their primary instruments could serve as having a very positive effect on our economy. By putting the interest rate the Fed pays on excess bank reserves in place of the current system, this gives the central bank something that is crucial to moving our economy forward; control. After flooding the market with a trillion dollars since 2007 it is no secret the Fed hasn’t been able to control the Federal Funds Rate. By having interest rates on excess reserves, if effective, would let the official raise the policy rate without any big draining to reserves. If the Fed increases this rate, it will in turn raise the cost of borrowing, in other words, when banks can hold onto their excess reserves on deposit with the Fed, they won’t lend at rates below the IOER. (1) However, a problem with this is that are some institutions that are not allowed to receive IOER which means there are leakages in the system. Also, if it was at a low rate, IOER may not function properly, which would mean the FOMC would have to find a different solution.
1 http://www.morganstanley.com/views/gef/archive/2009/20091028-Wed.html
The FOMC is considering changing their primary instrument in monetary policy, the federal funds rate, because of the financial crisis of 2008 and the resulting trillion dollar cash injection into financial markets that was meant to prevent a financial collapse by increasing liquidity. The federal funds rate, the interest rate at which banks borrow from one another, would in normal situations be used as a monetary tool to control inflation. However this trillion dollar injection has more than covered the requirement for bank’s required reserves, creating large excess reserves and severely decreasing trading in the federal funds market. This decrease in trade on the federal funds market undermines the effectiveness of the federal funds rate as a monetary tool. This has led the Fed to reconsidering its primary tool towards targeting interest on excess reserves, or IOER, a much more direct and controllable instrument in tightening credit. “By raising the deposit rate, now at .25 percent, officials reckon banks will keep money at the Fed and not stroke inflation by lending out too much as the economy recovers.” (1) The fear is that as the economy rebounds, the banking system will begin loaning more openly again, using their massive quantities of excess reserves. This “could lead to faster growth in broader-money-supply measures and, eventually, to substantial inflation.” (2) However the hope is, as Bernanke said in October, is that by using IOER, “banks will not lend funds in the money market at an interest rate lower than the rate they can ear risk-free at the Federal Reserve.” (3) Additional support for this policy change comes from the UK’s central bank, which has had success at matching the IOER with its benchmark interest rate at .5 percent. Doubts still remain however, specifically over how high the central bank has to keep interest rates on excess reserves to prevent one trillion dollars in reserves from flooding the market? “No economist doubts that the Fed can induce banks to hold some reserves by paying interest, but how much?” (4)
1) “Fed Weighs Interest on Reserves as New Policy Rate (Update2) -.” Bloomberg.com. Web. 04 Feb. 2010. .
2) “Economic View – Will the Fed Use Its Whole Arsenal Against Inflation? – NYTimes.com.” The New York Times – Breaking News, World News & Multimedia. Web. 04 Feb. 2010. .
3) “Fed Weighs Interest on Reserves as New Policy Rate (Update2) -.” Bloomberg.com. Web. 04 Feb. 2010. .
4) “Allan Meltzer: Bernanke’s Anti-Inflation Exit Strategy Will Fail – WSJ.com.” Business News, Finance News, World, Political & Sports News from The Wall Street Journal – WSJ.com. Web. 03 Feb. 2010. .
With the central bank having difficulty controlling the fed funds rate, there is no question that it will indeed try to adopt a strategy that they can control. However, doing so through IOER may not be the best strategy to take.
Economist Allan Meltzer points out several problems with the Fed’s strategy in his recent Wall Street Journal article. The fed hopes that offering interest on excess reserves held within a bank will encourage them to hold that money rather than lending it out, keeping the money supply and inflation stable. However it may be difficult to do this since banks are more interested in interest earned on loans than interest earned on reserves. If banks hold large amounts of reserves it may actually lead to higher inflation and money supply in the future since loans will increase once borrowing resumes.
However Meltzer brings up a point that may explain why the Fed would choose to change their primary instrument during our current economic crisis. In 1970, attempts to reduce inflation through higher interest rates yielded high rates of unemployment. It is the Federal Reserve’s goal to prevent inflation as well as unemployment, and it is clear that they hope to do both through this adopted instrument. Yet as stated before, using IOER may actually lead to higher inflation down the road.
Right now it appears that paying interest on excess reserves is basically a gamble that will decrease both inflation and unemployment. The Fed will not (or at least should not) be willing to keep IOER if unemployment is high. Meltzer points out that the fed tends to target only one problem at a time—inflation or unemployment. It appears through this strategy that they are focusing only on inflation.
http://online.wsj.com/article/SB10001424052748704375604575023632319560448.html
Increasing the rate on excess reserves held at the fed will encourage banks to deposit money at the fed. This will allow the fed more liquidity without increasing the overall amount of credit in the economy, which would put even further pressure on the Federal Funds Rate.(2)
The FOMC needs a mechanic that will be reliable when they start increasing rates as a way to prevent inflation during a recovery.(2) They have been using the Federal Funds Rate but it’s no longer controllable because of all of the money injected into the economy. Instead they are thinking about increasing the interest rate on excess reserves held at the fed.
I would disagree with Drazen about the rate the fed needs to set for the interest on excess reserves. I do not think the IOER needs to be higher than the FFR to make a difference because IOER is very, very low risk when compared to trading between banks.(2) A low IOER rate will at least give bottom to the FFR.
1) http://macroblog.typepad.com/macroblog/2008/10/why-is-the-fed.html
2) http://www.bloomberg.com/apps/news?pid=20601087&sid=ap1qcx0RZev0&pos=3
The FOMC is entertaining the option of changing its primary tool to enforce monetary policy to IOER because of the recent influx of money into the banking system. The banks excess money has decreased their need to borrow overnight in the federal funds market and has rendered this stabilization tool useless for the FED. Even if the banks do resort to borrowing from other banks the supply of capital is so great the FFR is at a historic low. I believe that paying interest on reserves is a useful tool to control inflation when the economy recovers from this recession, because the excess supply of money would cause extreme inflation. The FED having control of interest payed on reserves will slow inflation by making it an attractive option for banks to keep money on reserve with the FED. I think that even after the economy has recovered fully and the targeted FFR has been acheived the IOER still will be an effective tool for monetary policy.
http://www.newyorkfed.org/markets/ior_faq.html
http://www.marketskeptics.com/2009/05/exploding-monetary-base-and-paying.html
To fight the recent global financial crisis, which was the worst recession since the Great Depression for the U.S., the Federal Reserve utilized all available tools to improve the economic conditions. Firstly, through large open market purchases, the Fed directly increased monetary base and monetary supply in the economy, changed discount window policies and adjusted the discount window borrowing rate to encourage banks to borrow more. Also, the target Federal Funds Rate was cut dramatically. Starting in September 2007, by cutting 50bp from 5.25%, in December 2008, the target policy rate finally reached to “zero level” and is still at the level. The policies were implemented to encourage private sector spending and investment (“Monetary Policy Report to the Congress”, Feb. 2008, July 2008, Feb 2009 and July 2009). And now, people generally agree that the economy have passed the worst period of recession, and there are signs of economic recovery. However, that is not the end of the crisis. There is a huge concern for when and how the Fed is going to perform the exit strategy. During the crisis, more than $1 trillion was injected into the economy, and according to Guha (), bank’s excess reserve grew about 50 times greater than pre-crisis, which not became more than $1 trillion. Too much excess reserve is a big issue because it could trigger a hyperinflation. According to the originally posted article from professor Neveu, the Fed already has lost control over the federal funds rate since September 2008. And for commercial banks, just holding to their excess reserve could be a cost because they can make profit with the excess reserve by lending it out. Thus, they would rather lend out the excess reserve at a low level instead of keeping in a vault. And if other commercial banks borrows it and loan out some amount of the borrowed money again, and if the process is repeated, the $1 trillion excess reserve could grow and grow (multiplier effect). And it could eventually cause an excess liquidity, financial bubble, and hyperinflation. Therefore, the Fed would want to give the banks some incentive to keep their excess reserve in the Fed. In fact the Fed started to pay interest on banks’ balance at the Federal Reserve in last October (http://www.federalreserve.gov/newsevents/speech/bernanke20091008a.htm). That is why the Fed is considering replacing or supplementing the federal funds rate with interest paid on excess bank reserves. By controlling the interest on excess reserves and let the federal funds rate be traded within some spread, the Fed will be able to control the excess liquidity. This new policy tool would likely be used from last in this year, when the Fed starts to increase the interest rate, until the interest rate is restored to pre-crisis level.
http://www.federalreserve.gov/monetarypolicy/mpr_default.htm
http://www.ft.com/cms/s/0/90119c20-e9e1-11de-ae43-00144feab49a.html
http://news.goldseek.com/GoldSeek/1265303151.php
http://www.federalreserve.gov/newsevents/speech/bernanke20091008a.htm