12.11.18
The Death of Fed Funds? As Market Dries Up, FOMC Asks What Next
by: Alex Harris; Liz McCormick
Spurred by declining volumes and the dominance of a few participants in the market for fed funds, the Federal Reserve has started discussing potential alternative policy benchmarks as it seeks firmer control over the nation’s short-term interest rates. Federal Open Market Committee members brought up two potential alternatives at last month's meeting. The Overnight Bank Funding Rate could potentially supplant fed funds as the target policy rate. Published by the New York Fed, the unsecured benchmark adds eurodollar transactions to the volume of daily fed funds transactions that go into the calculation of the effective fed funds rate, roughly doubling the daily turnover. Another option is the Secured Overnight Financing Rate introduced earlier this year by the New York Fed in an effort to wean markets off their reliance on Libor. Strategists had already speculated that the Fed may seek to adopt the rate as its benchmark, in part to facilitate the transition from the London interbank offered rate.
Read the full article on Bloomberg