The Fed Should Fix the Interest on Reserves Floor
The Federal Reserve should fix the interest on reserves floor for the federal funds rate to facilitate the normalization of interest rate policy without interfering in financial markets. Instead, the Fed's intention to employ reverse repurchase agreements to establish a funds rate floor inserts the Fed into money market arbitrage and violates the minimum intervention principle of central banking.
The Federal Reserve should fix the interest on reserves floor for the federal funds rate to facilitate the normalization of interest rate policy without interfering in financial markets. Instead, the Fed's intention to employ reverse repurchase agreements to establish a funds rate floor inserts the Fed into money market arbitrage and violates the minimum intervention principle of central banking.
Read the full report here.
Are you interested in supporting the Manhattan Institute’s public-interest research and journalism? As a 501(c)(3) nonprofit, donations in support of MI and its scholars’ work are fully tax-deductible as provided by law (EIN #13-2912529).