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Unexpected changes to the benchmark U.S. interest rate

Discretion is the better part of valor

Quoting from the Board of Governors of the Federal Reserve System website: “The Federal Open Market Committee (FOMC) is the monetary policymaking body of the Federal Reserve System… The FOMC schedules eight meetings per year, one about every six weeks or so. The Committee may also hold unscheduled meetings as necessary to review economic and financial developments.”

One of those unscheduled meetings took place on Sunday, March 15. At that time, the FOMC announced a reduction in the benchmark U.S. interest rate target range by a full percentage point. This decision was made ahead of the regularly scheduled March 17-18 meeting. How often does the FOMC do this? That is, how often does it change its monetary policy target without waiting for a regularly scheduled meeting? FRED can help us answer that question.

The purple bars in the FRED graph above show the change in the federal funds target rate (which is a series that was discontinued after December 16, 2008, and the green bars show the change in the federal funds target range (upper and lower limits). The spacing between the bars shows the pace of interest rate adjustments. Because the data are at a daily frequency (including Sundays), we can see details more easily if we zoom in…

In the graph above, we’ve zoomed in to the months between June 2004 and August 2006, showing 17 increases in the target rate, matched to the regular FOMC meetings. All the changes in the target rate were of the same size: 0.25% (or 25 basis points).

Now, look at the months between August 2007 and July 2009. You can see 10 decreases in the target rate: 8 were announced at the regular FOMC meetings and 2 were in between meetings (January 22 and October 8, 2008). The changes in the target rate were of different sizes, ranging from 0.25% to 0.75% (or 25 to 75 basis points). Note that the December 16, 2008, change in the target rate was accompanied by the implementation of the target range, with upper and lower limits.

Over the past 20 years, the FOMC has held 184 meetings, 30 of which were unscheduled. During the same period, the FOMC changed its monetary policy target 54 times, 7 of which occurred after unscheduled meetings, which amounts to 13% of all policy target changes. You can also keep track of this schedule yourself: The Federal Reserve Board publishes the list of meetings and the list of open market operations that have changed the monetary policy rate

How these graphs were created: Search for and select “federal funds target rate (DISCONTINUED)” (series ID DFEDTAR). From the “Edit Graph” panel, use the “Add Line” to search for and select “federal funds target range upper limit” (series ID DFEDTARU). Repeat for “federal funds target range lower limit” (series ID DFEDTARL). For all lines, change the units to “Change, Percent.” For the second and third graphs, adjust the time periods.

Suggested by Diego Mendez-Carbajo.

View on FRED, series used in this post: DFEDTAR, DFEDTARL, DFEDTARU

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