Fed Balance-Sheet Decision Cements Funds Rate as Preferred Tool

The Federal Reserve’s decision to end its balance-sheet runoff after a drop in bank reserves suggests officials are doubling down on the federal funds rate as the primary tool to conduct monetary policy and help assess liquidity in the financial system.

The Fed said Wednesday it will stop shrinking its Treasury holdings beginning Dec. 1, ending a three-year long effort, after short-term interest rates in money markets remained elevated over several weeks.

While the central bank said it will continue unwinding its portfolio of mortgage-backed securities, reinvesting the proceeds into Treasury bills, it stopped short of announcing additional liquidity ...