funds market, is one example of lcr - favored wholesale borrowing. so, if banks were becoming more interested in improving their lcrs, they might seek out, and pay up for, loans from the fhlbs and other lcr - favored lenders. recent data indicates that lcr - related demand has pushed up the effective federal funds rate at times, notably in june. looking at the distribution of federal funds rates this year, figure 11 shows that the rates paid by domestic banks has increased relative to the rates paid by foreign banks. last year, these two types of firms paid fairly similar rates. my read is that the foreign banks are generally borrowing in the federal funds market primarily to earn a spread between the ior rate and the rate they pay to borrow funds, while some of the domestic banks, while also sensitive to the rate they pay, are borrowing in these markets to improve their lcrs. it seems like this more motivated borrowing activity helped bid up rates a bit. figure 12 shows that, since june, we have seen small and brief divergences between rates in the federal funds and eurodollar markets, which reflects transitory pricing of a premium on lcr - friendly borrowings around a period of heavy payment flows due to a federal tax payment due date. 29 this small effect is a minor illustration of the transitory money market “ turbulence ” i mentioned earlier. however, since these effects have been small and short - lived, i don ’ t see them as signaling that we are at or close to reserve scarcity. taking a step back, it is hard to be definitive on the recent drivers of moves in short - term money markets. the markets have economically complex structures, and in particular, a high degree of concentration within some money market segments. further, the prevalence of standing business relationships has seemed to mean that in practice transitory shocks can have more permanent effects on pricing. indeed, despite a recent decline in repo rates, the effective federal funds rate has remained fairly stable at nine basis points below the top of the range. 30 moreover, there have been various other recent shocks that may have influenced money market flows and structure, such as those from recently enacted tax reform measures. there are various opinions in the market on how things go from here. some believe that we might see federal funds rates remain at a similar spread to ior or rise somewhat closer to it — for example, due to a forecasted seasonal increase in net treasury bill issuance heading into

“ confidence in the implementation of u. s. monetary policy normalization ” remarks by simon m. potter executive vice president federal reserve bank of new york at the 23rd emeap ( executives ’ meeting of east asia - pacific central banks ) governors ’ meeting manila, philippines august 4, 2018 thank you for the invitation to participate in today ’ s discussion about globalization and its effect on monetary policy in emerging market economies. 1 u. s. financial markets, and the u. s. monetary policy stance, can significantly influence global financial conditions and capital flows. 2 in no small part, this reflects the extensive use of the dollar in international trade and in financial transactions conducted outside the united states. the pricing and availability of financing for business activity around the world — even activity that does not directly relate to an american borrower, lender, producer, or consumer — often are influenced by conditions in u. s. - dollar money markets. and, understandably, the evolution and stability of dollar funding markets are a focus of attention for many economic policymakers around the world, especially here in the east asia - pacific region. as always, the views i will express today are mine alone and do not necessarily reflect those of the new york fed or the federal reserve system. my remarks today will focus on the implementation of monetary policy normalization in the united states and its contribution toward maintaining stability in u. s. - dollar money markets. i will start by reviewing progress on the federal open market committee ( fomc ) ’ s program to normalize the stance of monetary policy. the fomc has carefully laid out a clear and transparent normalization strategy and is implementing that strategy, and i believe that the confidence engendered by this clarity and transparency has been of great importance in maintaining market stability, both in the united states and globally. experience so far has shown that the federal reserve ’ s monetary policy implementation framework has continued to provide appropriate control over the federal funds rate, even as the fomc has moved to reduce the size of the balance sheet gradually and predictably. this stability has supported the orderly functioning of the broader set of dollar money market rates that are important to financial conditions in the united states and around the world. then, i will discuss the recent technical adjustment to the rate of interest paid on reserves ( ior ). the federal reserve made the adjustment to provide greater comfort that the effective federal funds rate would remain within the target range set by the fomc. 3 i