The Fed's attempt to normalize monetary policy by increasing the interest on excess reserves rate
A)has been frustrated by nonbank financial firms lending to banks.
B)has been hindered by the zero lower bound problem.
C)has succeeded in raising the federal funds rate to historically normal levels.
D)has been slowed by offsetting reverse repo transactions.

Question

Quizplus · Accepted Answer

Nonbank financial firms lending to banks can undermine the Fed's efforts to control the federal funds rate by increasing the supply of reserves, which can counteract the Fed's attempts to raise interest rates through the interest on excess reserves rate.

The Fed's Attempt to Normalize Monetary Policy by Increasing the Interest