Fed May Need to Update Interest Rate Guide
Reuters notes in report that the Fed’s ability to control rates is much harder now that it has $2.5 trillion in reserves compared to when the banking system had about $800 billion in excess cash.
Reuters said the Fed has to look elsewhere to mop up reserves easily without causing dislocations. Now it has the term deposit facility, reverse repurchase agreements and interest on excess reserves – the three other programs that the Fed has signaled it will use when it attempts to normalize interest rates.
According to Reuters, the combination of all three, along with how the Fed controls the fed funds rate, will usher in a new policy regime instead of the ultra-loose one it has clung to for the last five years.
To read the entire Reuters article, click here.