finance, vol. 138 ( may ). see for example eric engen, thomas laubach, and david reifschneider ( 2015 ), “ the macroeconomic effects of the federal reserve ’ s unconventional monetary policies, ” finance and economics discussion series 2015 - 005 ( washington : board of governors of the federal reserve system, february ), http : / / dx. doi. org / 10. 17016 / feds. 2015. 005 ; kyungmin kim, thomas laubach, and min wei ( 2020 ), “ macroeconomic effects of large - scale asset purchases : new evidence, ” finance and economics discussion series 2020 - 047 ( washington : board of governors of the federal reserve system, june, revised august 2023 ), https : / / doi. org / 10. 17016 / feds. 2020. 047r1 ; and stephan luck and tom zimmermann ( 2020 ), “ employment effects of unconventional monetary policy : evidence from qe, ” journal of financial economics, vol. 135 ( march ), pp. 678 – 703. - 4asset class could be effective for those asset classes that had experienced stress, as was the case with mbs during that period. the federal reserve concluded its asset purchases in 2014, after initiating the tapering process in 2013. in 2017, the fed began to reduce its securities holdings, which is often referred to as quantitative tightening ( qt ). in january 2019, the fomc voted to operate monetary policy in an “ ample reserves ” environment. 6 this change in the policy implementation framework had the effect of keeping the size of the balance sheet much larger and providing more liquidity to the banking system in normal times than had been the case before the financial crisis. the fomc ended qt in august 2019, and balance sheet growth resumed in october 2019 through the purchase of u. s. treasury bills and securities following a brief period of stress in money markets in which the interest rates on repurchase agreements and other short - term funding instruments jumped, as noted by the line labeled “ repo spike ” in figure 1. this stress was interpreted as an indication that the level of reserves had fallen below ample levels. 7 overall, one could deem the post – financial crisis use of the federal reserve ’ s balance sheet as a monetary policy tool as a success. unemployment fell and inflation remained near 2 percent through the period over which lsaps were conducted.

the intent of forward guidance was to lower longer - term interest rates by shifting expectations of “ low - for - long ” short - term interest rates in line with a low - for - long federal funds rate. lsaps, or quantitative easing ( qe ), were intended to reduce longer - term interest rates further by lowering the yields of specific longer - dated securities being purchased and by reducing more generally the term premia, the compensation that investors must earn to incentivize investment in a longerterm bond relative to a short - term bond. lsaps could also reinforce the fomc ’ s forward guidance of low - for - long short - term interest rates. such reinforcement of lowfor - long forward guidance could be especially powerful if the fomc communicated that it would not consider raising the target range for the federal funds rate until it stopped actively engaging in asset purchases for the purposes of qe. the federal reserve purchased both treasury securities and agency mortgagebacked securities ( mbs ) as part of its qe programs from 2009 to 2014. figure 1 shows the evolution of the federal reserve balance sheet assets and liabilities from before the 2008 financial crisis to the present. the fed ’ s treasury and agency securities holdings increased from around half a trillion dollars to around $ 4. 25 trillion by the end of the third round of qe, which ended in 2014. a range of studies indicate that the fed ’ s asset purchases were effective in raising the prices of and lowering the yields on the targeted class of securities. 2 research suggests that these asset purchases also helped lower term see, for example, mark carlson, stefania d ’ amico, cristina fuentes - albero, bernd schlusche, and paul wood ( 2020 ), “ issues in the use of the balance sheet tool, ” finance and economics discussion series 2020 - 071 ( washington : board of governors of the federal reserve system, august ), https : / / doi. org / 10. 17016 / feds. 2020. 071 ; stefania d ’ amico and thomas b. king ( 2013 ), “ flow and stock - 3and risk premia across other asset classes, including corporate securities. 3 the impact on the mbs pricing and credit flow was significant since securities prices in this asset class were especially impacted during the financial crisis. financial institutions holding mbs on their balance sheets, including banks, were also significantly affected. some studies have documented that the