On Tuesday, September 22, New York Fed President John Williams spoke at the 2026 U.S. Treasury Market Conference about how innovations in market structure have impacted monetary policy implementation.
He said:
“As markets evolve over time, we must ensure that policy tools are fit for purpose to carry out their necessary functions. Put simply, the evolution of financial market structure leads to the evolution of how we carry out monetary policy effectively.”
“The three most important principles for monetary policy implementation [are] interest rate control, low opportunity costs, and elasticity.”
“We at the New York Fed are engaged in monitoring and understanding the evolution of market structure, so that we can recognize its implications for the work that we do.”
President Williams began his remarks by looking back at past U.S. Treasury Market Conferences, which he noted serve as a “valuable touchpoint to discuss critical and pressing issues.” He credited the success of the annual conference to the strong partnership between leaders and representatives from both the public and private sectors, pointing to collaborative efforts such as the transition away from LIBOR and the shift to expanded central clearing.
President Williams then discussed a common theme at past conferences, which is the importance of innovations in the evolution of market structure and their widespread implications for the future.
He reiterated the imperative that as markets evolve over time, policy tools must be fit for purpose to carry out their necessary functions, and he highlighted two examples: the shift from a bilateral repo structure to a tri-party repo structure, and overnight reverse repo operations (ON RRP).
“These two examples illustrate that as markets evolve, policy tools must evolve as well to ensure effective monetary policy implementation,” he added.
With this background in mind, President Williams enumerated the three most important principles for monetary policy implementation: interest rate control, low opportunity costs, and elasticity.
Interest rate control, he said, “is absolutely foundational and a core responsibility of the Federal Reserve.”
Meanwhile, “there should be little or no opportunity cost to holding reserves at the central bank,” he explained, “as a high opportunity cost is simply inefficient and creates other distortions that interfere with market functioning and stability.”
He described elasticity to mean that as conditions change, the quantity of reserves changes too, noting that “this idea traces back to the early days of the founding of the Federal Reserve.”
President Williams closed by saying, “It is imperative that as the markets evolve, we have the policy tools that are right for that purpose and are well designed to function effectively under all circumstances.”
Julie Lasson is an executive communications specialist at the New York Fed.
The views expressed in this article are those of the contributing authors and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.
