The Death of Fed Funds? As Market Dries Up, FOMC Asks What Next

Bloomberg reports:

The debate to replace the Federal Reserve’s key interest rate has begun.

Spurred by declining volumes and the dominance of a few participants in the market for fed funds, the central bank has started discussing potential alternative policy benchmarks as it seeks firmer control over the nation’s short-term interest rates.


While the deliberations have been largely overshadowed in recent weeks by speculation over a shift in the Fed’s tightening trajectory and the fate of its $4.1 trillion balance sheet, where they lead could have dramatic consequences for financial markets. Federal Open Market Committee members brought up two potential alternatives at last month’s meeting, and they could hardly be more different. What’s more, some strategists say a policy-targeting pivot could come as soon as next year.

“The Fed knows that fed funds is flawed,” said Mark Cabana, head of U.S. interest-rate strategy at Bank of America Corp. “It’s probably fatally flawed in their mind, and in the market’s mind.”

An article well worth your time.