( ior ), which is the federal reserve ’ s main tool to control interest rates, and the overnight reverse repurchase agreement ( on rrp ) facility, a secondary tool. 6 this framework has proven to be extremely effective at controlling federal funds rates. as shown in figure 1, it has maintained the effr within the fomc ’ s target range on all but one day. 7 looking at the distribution of traded rates within both the federal funds and eurodollar funding markets, as shown in figure 2, it is also clear that the framework has broadly fostered trading at rates well within the target range. indeed, the difference between the 25th and 75th percentiles of the rate distribution has consistently remained very tight over the course of rate normalization. 8 potter, “ money markets after liftoff : assessment to date and the road ahead, ” february 22, 2016, provides a detailed discussion of the new framework. for a discussion of the new and old frameworks, see ihrig, meade, weinbach ( 2015 ). logan, “ operational perspectives on monetary policy implementation : panel remarks on the future of the central bank balance sheet, ” may 4, 2018, provides a comparison of the technical operation of the pre - crisis and current frameworks. this one day was december 31, 2015, when the federal funds rate printed at 20 basis points, or five basis points below the bottom of the fomc ’ s target range. potter, “ money markets after liftoff : assessment to date and the road ahead, ” february 22, 2016, discusses this occasion. the distribution of traded rates underlying the secured overnight funding rate ( sofr ) is broader than that underlying the effr and overnight bank funding rate ( obfr ). this reflects sofr ’ s construction, which was designed to improve repo market transparency by including rates on transactions across three segments of the repo market. of course, monetary control does not stop at the federal funds market : our framework must ensure that the stance of monetary policy is passed through into other money markets. it has also been very successful in this sense. figure 3 shows a broad selection of secured and unsecured overnight money market rates ; it is clear that increases in the target range for the federal funds rate have passed through fully and immediately to the other rates, as expected and intended. moreover, i have been very encouraged by the relative stability and high degree of comovement among short - term money

first time at its next monetary policy meeting, such a smooth interest rate cycle could not have been foreseen. just shortly after the monetary policy meeting, sharp movements in bond markets emerged. this dynamic was triggered by concerns that inflation would be more persistent than expected. these concerns were prompted by poor inflation data from the united states, which led to a sharp rise in us yields – for example of around 70 basis points for the two - year us treasury within one week. market turbulence was hence by no means confined to the euro area. however, the architecture of the euro area carries a particular risk of self - reinforcing interest rate dynamics. as investors can quickly transfer funds from one part of the monetary union to another part that is regarded as a safe haven, without incurring any currency risk, the combination of national fiscal policy and european monetary policy can – in times of great uncertainty – result in sudden interest rate spirals in bond markets. past experience shows that such interest rate spirals can make single monetary policy impossible. if sovereign bond yields of different member states diverge abruptly, a smooth transmission of monetary policy across the whole euro area can no longer be ensured. in the conditions prevailing at the time, the necessary interest rate steps could therefore have led to disproportionately higher interest rate adjustments in parts of the euro area. in response to this market turbulence, the ecb announced its transmission protection instrument ( tpi ) in july 2022. [ 8 ] the tpi aims to ensure the smooth transmission of monetary policy by countering disorderly market dynamics, unwarranted by fundamentals. the tpi sets clear conditions for the purchase of a member state ’ s bonds. these conditions are intended to ensure that the instrument is only used in countries that pursue sound and sustainable fiscal and macroeconomic policies. the tpi is hence not simply a continuation of the flexibility under the pepp. during the pandemic the latter allowed for conducting asset purchases flexibly over time, across asset classes and among jurisdictions. this flexibility was used temporarily at the outset of the pandemic and at the start of the hiking cycle to counteract disorderly movements in bond prices. however, deviations from the ecb ’ s capital key remained limited. speculation that the ecb has permanently skewed its asset purchases in certain directions is unfounded. temporary fluctuations in the capital key often occurred for technical reasons and, as shown by the examples of italy and france, added up to