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The Fed's IOER Experiment May Already Be Reaching Its Limits

  • Traders expect another policy tweak at this week’s meeting
  • Yet there’s debate over how much further officials can go
American flag flies outside the U.S. Federal Reserve building in Washington, D.C.

American flag flies outside the U.S. Federal Reserve building in Washington, D.C.

Photographer: Joshua Roberts/Bloomberg
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The Federal Reserve’s latest strategy to control its key interest rate may already be reaching its limits.

Officials are widely predicted to lift their main target range Wednesday, with a slight twist. The Fed is expected to increase one of the rates it uses to help guide the top of the policy band by a bit less, echoing a similar action taken in June. It’s part of an effort to keep in check the rising fed effective rate. The benchmark has been drifting toward the upper end of the main range for much of 2018 as a combination of surging Treasury-bill supply and the central bank’s balance-sheet unwind have driven U.S. money-market rates higher.