As you have undoubtedly heard by now, the Open Market Committee cut their target Fed Funds rate from 5.25% to 4.75%. This is a wise move, given the recent troubles in the credit markets.
But I am concerned that the Fed governors have lost sight of their goal of transparency. They had effectively abandoned their former 5.25% target some weeks ago, as can be seen from the effective Fed Funds rates that banks have been charging each other for the last few weeks (source: Board of Governors website):
08/07/2007, 5.26
08/08/2007, 5.27
08/09/2007, 5.41
08/10/2007, 4.68
08/13/2007, 4.81
08/14/2007, 4.54
08/15/2007, 4.71
08/16/2007, 4.97
08/17/2007, 4.91
08/20/2007, 5.03
08/21/2007, 4.89
08/22/2007, 4.77
08/23/2007, 4.88
08/24/2007, 5.11
08/27/2007, 5.27
08/28/2007, 5.30
08/29/2007, 5.00
08/30/2007, 5.00
08/31/2007, 4.96
09/03/2007, ND
09/04/2007, 5.22
09/05/2007, 5.18
09/06/2007, 4.98
09/07/2007, 4.86
09/10/2007, 5.07
09/11/2007, 5.06
09/12/2007, 5.18
09/13/2007, 5.09
09/14/2007, 5.25
Banks have been borrowing and lending to each other at much lower rates than the target for most of the last five weeks. It wasn't until last friday, September 14 that they got back to the target.
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