The ACTUAL Fed Funds Rate is Already ZERO
The federal funds rate, at which banks lend to each other, is already at 1%. The Fed is expected to drop it to half a percent, or even lower, at the end of its policymaking meeting today. That would be the lowest U.S. rate on record.
MP: The Post article above illustrates some widespread confusion about: a) the TARGET Fed Funds rate (currently at 1%), and b) the ACTUAL Fed Funds rate (currently close to 0), see chart above (click to enlarge) using Fed data. The actual Fed Funds rate is determined by banks borrowing and lending bank reserves, so it generally a market-determined rate that can deviate from the intended target rate. The Post article should have said "The TARGET federal funds rate is already at 1%," and it could have been clarified that the ACTUAL rate at which banks actually lend to each other is closer to .25%, not 1%.
Notice that in October when the target Fed Funds rate was 1.5% (blue line), the actual Fed Funds rate was about 1% (red line). For the last two months, the target Fed Funds rate was 1%, while the actual Fed Funds rate has ranged between about .50% and close to zero, probably averaging about .25%.
At its meeting today, the FOMC is expected to cut its target Fed Funds rate again. But if the actual Fed Funds rate is already close to zero, will it really have any effect? Can it really have any real effect?