Economics
Repo Turmoil Spawns Doubt Fed Is Targeting Right Interest Rate
- Federal funds market is ‘moribund,’ BofA’s Cabana says
- Fed discussed alternatives to funds target in November
This article is for subscribers only.
Recent turbulence in U.S. money markets has cast light on a big problem hidden at the root of the Federal Reserve’s conduct of monetary policy: It is targeting an increasingly irrelevant interest rate.
Less than $100 billion changes hands each day in the federal funds market, the overnight interbank rate that the central bank targets. In contrast, considerably more than a trillion dollars are traded daily in the market for repurchase agreements, where financial institutions swap Treasury securities for cash.