Williams names three rules for how the Fed runs policy in changing markets

Victoria Shinder27 September 2026, 19:592 min read

John C. Williams, president of the Federal Reserve Bank of New York, opened this year's US Treasury Market Conference on 22 September with remarks about the machinery rather than the stance of monetary policy. His argument was that as market structure changes, the tools the Fed uses to implement policy have to change with it. As usual, he said the views were his own.

He gave two examples of that evolution. When the repo market moved from bilateral to tri-party arrangements, the New York Fed's trading desk moved its operations there too. And the growth of money market funds shaped the design of the overnight reverse repo facility, making those funds some of the Fed's largest counterparties. He noted that the shift to central clearing of Treasury trades is well underway, with activity moving from uncleared to cleared markets ahead of schedule, and that the Fed will study how clearing affects its tools. Stablecoins and tokenised finance, a theme of this year's Jackson Hole symposium, were a focus of the conference.

Williams then set out three principles for implementation. The first is effective interest rate control, which he called foundational. The second is that holding reserves at the central bank should carry little or no opportunity cost, since a high cost is inefficient and distorts markets; he stressed that this idea predates quantitative easing and is a defining feature of the ample reserves approach. The third is elasticity: when demand for reserves shifts, because of regulation, market structure or anything else, the Fed should shift supply to match over time.

What it means

The speech is a statement of doctrine, not a signal about rates, and it pairs with remarks the same day by Roberto Perli explaining why the Fed has paused its bill purchases. Taken together, they say that reserve supply will follow demand and that the operating framework, not the policy rate, absorbs changes in market plumbing.

The forward-looking part concerns stablecoins and central clearing. Both could change who holds reserves, who borrows in repo and where money market rates are set. Williams's message is that the Fed intends to be present in whichever markets matter for transmission - which is also a warning that its counterparties and tools may look different in a few years.