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Wait, the fed wants an overnight rate in a specific range. To do this they just set the deposit rate under the "floor" to encourage banks to lend above that, bu
by howeyc 7y ago
Wait, the fed wants an overnight rate in a specific range. To do this they just set the deposit rate under the "floor" to encourage banks to lend above that, but they didn't set a ceiling, assuming it would magically stay in target range??
Now they are "thinking" of making a standing offer to lend at the top of their target range. Makes sense to me.
- nickles 7y ago> To do this they just set the deposit rate under the "floor" to encourage banks to lend above that, but they didn't set a ceiling, assuming it would magically stay in target range? Yes. The Fed had hoped that IOER would serve as a floor for controlling interest rates, when it ended up acting as a ceiling. They used repo transactions to try and counter this. Prior to ~2007, the Fed used open market operations to maintain a corridor system.