Actual Fed Funds Rate is Now Below .25%
The Fed used to do a much better job of actually targeting its Fed Funds target, see chart above (click to enlarge) showing data since late January 2008 when the Fed lowered its target from 3.5% to 3% (data here). The blue line is the Fed Funds target and the red line is the actual Fed Funds rate. When the Fed lowered the target to 1.5%, the actual Fed Fund rate was closer to 1%, and now that the target is 1%, the actual Fed Funds rate has been below .25% for the last five days(through Tuesday of this week).
3 Comments:
We have now entered the world of Japanese interest rate policy. Let's see, how well did that work?
One has to remember that Fannie and Freddie also operate in the Fed Funds market and have different incentives than the Fed. When there is that much liquidity "sloshing" around it makes it that much harder for the NY desk to hit their target.
The Fed funds market is an auction market, if the banks actually wanted the reserves the Fed has put into the market the demand would drive the rate up. Apparently there is more liquidity than is desired.
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