Not too long ago, the Federal Reserve’s problem was that the effective funds rate — its key policy benchmark — climbed too close to the top of its target range, prompting officials to adjust interest on excess reserves closer to the lower end of the band starting in mid-2018.
Now, the fed funds rate is too close to the bottom — and right in line with the current IOER rate of 1.55% — leading some to question whether policy makers will increase the latter in December. Even if it’s just 5 basis points, a small increase in interest rates after back-to-back-to-back cuts would undoubtedly raise some eyebrows on Wall Street.
Of course, with the Atlanta Fed GDPNow Q4 GDP at 0.4%, it is apparent that the US economy is slowing.
President Trump is likely singing to Fed Chair Powell “Why Can’t We Be Friends?” and lower rates.