The timing to stop shrinking the balance sheet sends a signal, and the federal funds rate remains the preferred tool of the Federal Reserve.

The Federal Reserve has made the decision to stop tapering after a decrease in bank reserves, indicating that officials are increasingly relying on the federal funds rate as a key tool to implement monetary policy and measure liquidity in the financial system. The Fed announced on Wednesday that it will stop reducing its holdings of Treasury bonds starting from December 1. Short-term money market rates have been at elevated levels for several weeks. Despite continuing to reduce its holdings of mortgage-backed securities and reinvesting maturing funds in Treasury securities, the Fed did not announce any other liquidity measures to ease financing cost pressures.