As a result of policy actions taken by the Fed since 2008, it (the Fed) can no longer expect to affect the federal funds rate through traditional open market operations to alter the overall amount of excess reserves in the banking system. This is because
A) Congress has taken this power away from the Fed.
B) there is a massive amount of excess reserves already in the banking system.
C) the federal funds rate has become rigidly ﬁxed by law.
D) banks are no longer holding any excess reserves.

Question

Quizplus · Accepted Answer

Since the financial crisis of 2008, the Fed has taken policy actions that have resulted in a massive increase in the amount of excess reserves held by banks. As a result, the level of excess reserves in the banking system is so high that traditional open market operations by the Fed can no longer be used to affect the federal funds rate. This is because the supply of reserves is so plentiful that banks are not willing to lend them out at a higher rate, even if the Fed were to attempt to raise interest rates through open market operations.

As a Result of Policy Actions Taken by the Fed