, Columnist
The Fed Should Dump Its Interest-Rate Target
The federal funds rate has outlived its usefulness.
Choose the right one.
Photographer: Anthony Devlin/Getty ImagesThis article is for subscribers only.
Adjusting interest rates has long been the Federal Reserve’s primary tool for managing the U.S. economy. But as the way in which the Fed implements monetary policy changes, it needs to consider changing the interest rate it targets.
For many years, the Fed has focused on the federal funds rate, the overnight rate at which banks lend each other cash reserves that they keep at the central bank. By manipulating the amount of reserves available, the Fed would cause the rate to rise or fall, and this would affect interest rates more broadly throughout the economy.