One the primary tools of monetary policy, the Fed Funds rate, is seeing the volume of Fed Funds drying up.
(Bloomberg) — The debate to replace the Federal Reserve’s key interest rate has begun.
Spurred by declining volumes and the dominance of a few participants in the market for fed funds, the central bank has started discussing potential alternative policy benchmarks as it seeks firmer control over the nation’s short-term interest rates.
While the deliberations have been largely overshadowed in recent weeks by speculation over a shift in the Fed’s tightening trajectory and the fate of its $4.1 trillion balance sheet, where they lead could have dramatic consequences for financial markets. Federal Open Market Committee members brought up two potential alternatives at last month’s meeting, and they could hardly be more different. What’s more, some strategists say a policy-targeting pivot could come as soon as next year.
But not to fear. The Fed’s QE program is shrinking, but has a long way to go. But it does seem the we have hit a break-point in the balance sheet and the 10-year yield.
Of course, The Fed coulds always CHARGE banks interest to park their excess reserves at The Fed instead of paying interest.
Here is The Fed trying to control the economy with their Fed Funds rate.
What will The Fed do to get back in the saddle again?