The End of Traditional Monetary Policy

"The Federal Reserve’s current operating system allows it to sterilize the effects of monetary expansion. It can purchase securities and simultaneously (1) raise the rate paid on excess reserves relative to the federal funds rate or (2) work with the Treasury for it to increase the balance of the General Account. Or (3) it may isolate the effects of monetary expansion by providing support for overnight lending markets. As a result of payment of interest on excess reserves, there is a discrepancy between the quantity of base money in circulation and the total quantity of base money. Changes in the Treasury’s General Account and intervention in the overnight lending market can reduce the total quantity of base money while maintaining a swollen balance sheet. 

Monetary policy ain’t what it used to be.

The Federal Reserve has innovated methods that allow it to hide the effect of its monetary intervention — namely, support for federal borrowing. The intervention can only remain hidden so long as the Federal Reserve earns a profit."