12 i ’ d like to take a moment to explain why i believe such a regime would be a sensible way to implement policy during the first stages of normalization, when reserve balances will be in such ample supply. most importantly, it ’ s a regime in which the desk should achieve the target for the fed funds rate set by the fomc. as ioer is raised, its magnetic force will pull the fed funds rate higher. at the same time, the high level of reserve balances in the system should lead the effective rate to print below the ioer rate, at least initially during normalization. as described in addition to improving competition in money markets, by conducting a daily operation with a known, fixed rate, the fed can reduce uncertainty and absorb day - to - day variations in the supply of and demand for funds and collateral. an eligible lender that cannot earn the ioer rate and that has an unexpectedly large amount of funds to invest would be able to place the funds in the on rrp facility rather than sell them in the market at an unusually low rate. this should reduce downward pressure on money market rates. see the discussion in the minutes to the june and july fomc meetings, http : / / www. federalreserve. gov / monetarypolicy / fomcminutes20140618. htm and http : / / federalreserve. gov / monetarypolicy / fomcminutes20140730. htm. see the survey of primary dealers and the survey of market participants bis central bankers ’ speeches earlier, if the magnetic pull of ioer alone is insufficient, on rrps should help to form a floor on rates by providing a risk - free, overnight asset to a broad range of non - bank investors. as a result of these forces, the effective funds rate should generally print within the target range. that said, as the chair noted during her september press conference, the committee expects that the effective fed funds rate may vary within the target range and could even move outside of it on occasion. for example, the effective rate could move outside the target for a day or two around key financial reporting dates, such as quarter - ends, when some banks ’ marginal balance sheet costs are particularly high. however, such transitory movements should have no material effect on financial conditions or the broader economy. what matters for policy transmission is the predictability that on most days money market

of reserve balances in the system will be significantly higher during normalization than was envisioned when the 2011 principles were adopted. in light of this, as i just outlined, the fomc has judged it appropriate to operate with a framework for interest rate control that is based primarily on administered rates rather than reserve draining tools. given the unprecedented nature of this framework, the committee has made clear that it is prepared to adjust the details of its approach in light of economic and financial developments. the fomc has consistently adapted its policies as needed in recent years and will no doubt continue to do so as necessary throughout the normalization process in order to foster conditions consistent with its dual mandate. the framework for interest rate control during normalization now i ’ d like to talk in more detail about the plans and tools for influencing short - term interest rates that the fomc will use when it becomes appropriate to raise rates. a target range for the fed funds rate as i noted, during normalization the committee will continue to communicate the stance of policy through a target for the federal funds rate. the fed funds rate is an overnight, unsecured interest rate in the market for reserves – the rate at which banks and certain other eligible entities borrow or lend balances held at the fed. 1 the committee also agreed that it would continue to set a target range for the federal funds rate during normalization. when the fomc begins to remove accommodation, the level of reserves in the banking system will be very high and the federal reserve will be employing new tools to implement policy. against this backdrop, the committee has chosen to establish a target range, rather than a point target, in order to provide an appropriate degree of flexibility in policy implementation. a key advantage to targeting the fed funds rate is that the committee has done so successfully for many decades. as a result, it ’ s a familiar rate for the public in judging the stance of monetary policy, and its continued use simplifies the fed ’ s communications. while the committee has targeted the fed funds rate for many decades, activity in the fed funds market has changed considerably in recent years. prior to the crisis, many banks typically borrowed fed funds in order to satisfy reserve requirements or obtain short - term the effective fed funds rate is a measure of the prevailing rate in the market each day. this is calculated as a volume - weighted average of rates on trades arranged by major brokers, and is published by the new york fed. see http : / /