than $ 600 billion, reflecting the improvement in financial conditions that has already occurred. in addition, bank reserves held at the fed will decline as the longer - term assets that we own mature or are prepaid. nevertheless, should economic conditions warrant a tightening of monetary policy before this process of unwinding is complete, we have a number of tools that will enable us to raise market interest rates as needed. perhaps the most important such tool is the authority that the congress granted the federal reserve last fall to pay interest on balances held at the fed by depository institutions. raising the rate of interest paid on reserve balances will give us substantial leverage over the federal funds rate and other short - term market interest rates, because banks generally will not supply funds to the market at an interest rate significantly lower than they can earn risk free by holding balances at the federal reserve. indeed, many foreign central banks use the ability to pay interest on reserves to help set a floor on market interest rates. the attractiveness to banks of leaving their excess reserve balances with the federal reserve can be further increased by offering banks a choice of maturities for their deposits. but interest on reserves is by no means the only tool we have to influence market interest rates. for example, we can drain liquidity from the system by conducting reverse repurchase agreements, in which we sell securities from our portfolio with an agreement to buy them back at a later date. reverse repurchase agreements, which can be executed with primary dealers, government - sponsored enterprises, and a range of other counterparties, are a traditional and well - understood method of managing the level of bank reserves. if necessary, another means of tightening policy is outright sales of our holdings of longer - term securities. not only would such sales drain reserves and raise short - term interest rates, but they also could put upward pressure on longer - term interest rates by expanding the supply of longerterm assets. in sum, we are confident that we have the tools to raise interest rates when that becomes necessary to achieve our objectives of maximum employment and price stability. fiscal policy our economy and financial markets have faced extraordinary near - term challenges, and strong and timely actions to respond to those challenges have been necessary and appropriate. i have discussed some of the measures taken by the federal reserve to promote economic growth and financial stability. the congress also has taken substantial actions, including the passage of a fiscal stimulus package. nevertheless, even as important steps have been taken to address the recession

the taxpayer as we supply liquidity to the financial system and support the functioning of key credit markets. the congress has recently discussed proposals to expand the audit authority of the government accountability office ( gao ) over the federal reserve. as you know, the federal reserve is already subject to frequent reviews by the gao. the gao has broad authority to audit our operations and functions. the congress recently granted the gao new authority to conduct audits of the credit facilities extended by the federal reserve to " single and specific " companies under the authority provided by section 13 ( 3 ) of the federal reserve act, including the loan facilities provided to, or created for, american international group and bear stearns. the gao and the special inspector general have the right to audit our talf program, which uses funds from the troubled assets relief program. the congress, however, purposefully – and for good reason – excluded from the scope of potential gao reviews some highly sensitive areas, notably monetary policy deliberations and operations, including open market and discount window operations. in doing so, the congress carefully balanced the need for public accountability with the strong public policy benefits that flow from maintaining an appropriate degree of independence for the central bank in the making and execution of monetary policy. financial markets, in particular, likely would see a grant of review authority in these areas to the gao as a serious weakening of monetary policy independence. because gao reviews may be initiated at the request of members of congress, reviews or the threat of reviews in these areas could be seen as efforts to try to influence monetary policy decisions. a perceived loss of monetary policy independence could raise fears about future inflation, leading to higher long - term interest rates and reduced economic and financial stability. we will continue to work with the congress to provide the information it needs to oversee our activities effectively, yet in a way that does not compromise monetary policy independence. see " credit and liquidity programs and the balance sheet " on the board's website. see the monthly reports on the board's website at " credit and liquidity programs and the balance sheet, " congressional reports and other resources, federal reserve system monthly reports on credit and liquidity programs and the balance sheet.