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Posts tagged with: "DFEDTARL"

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Tracking more Fed policy tools

Those outside the Fed often cite the federal funds rate as the only tool in the FOMC’s monetary policy toolbox. But there are more—a fact first demonstrated when the FOMC employed “non-traditional” policy instruments in its successive quantitative easing programs, all of which involved purchasing some assets. As the FOMC has started to increase the federal funds rate target from near zero, it has also made clear that it can also use two other interest rates to set monetary policy: the interest rate on required reserves and the interest rate on excess reserves. FRED has recently added data on these two rates so users can track how these policy instruments are evolving.

The graph above shows these three rates: the federal funds rate target, which has an upper and lower limit to its range, and the two rates on reserves. At this point, there’s not much to see, as the rates on reserves currently coincide with the lower limit of the federal funds rate target and have done so for some time. But these rates need not follow the same path. In fact, the FOMC may implement policy by adjusting one or more of these rates if necessary.

How this graph was created: Search one by one for the four series and add them to the graph. For a shortcut, search for the series IDs: IORR, IOER, DFEDTARU, DFEDTARL.

Suggested by Christian Zimmermann

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

Federal funds rate: target vs. reality

The traditional policy tool of the Fed is to target the federal funds rate. Note the term target. Indeed, the Fed does not set this interest rate; rather, it sets the target and then conducts open market operations so that the overnight interest rate on funds deposited by banks at the Fed reaches that target. Obviously, reaching the target is sometimes harder to do, especially in times when there’s a lot of uncertainty in the markets. The graph above compares the target (or target band more recently) with the effective federal funds rate. While the two coincide quite well over most of the 10-year period, there are important deviations that correspond to various financial market events. Nevertheless, these deviations are short-lived, which shows that the open market operations do have the desired effect.

How this graph was created: Search for “federal funds rate” and these four series should be among the top choices. Select the daily rates and use the “Add to graph” button to add them to the graph.

Suggested by Christian Zimmermann

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

The many faces of the federal funds rate

It’s no surprise FRED has federal funds rate data. But these data aren’t as simple as you may think. They have changed form over time as the Federal Open Market Committee has changed the way it sets the funds rate: From 1982 through 2008, the target rate is a discrete number. For example, it is 9.5% on Oct. 1, 1982, 3% on Oct. 1, 1992, and 1.75% on Oct. 1, 2002. At the end of 2008 (i.e., since the financial crisis), the FOMC began setting a target range of 0.00 to 0.25%. And, to further complicate matters, the data prior to 1994 come from the working paper “A New Federal Funds Rate Target Series: September 27, 1982 – December 31, 1993,” making it an altogether different series.

The discrete-target funds rate for 1982-2008 is DFEDTAR in FRED. The target-range funds rate since then has a lower and upper bound—DFEDTARL and DFEDTARU, respectively.

Of course, FRED will continue to accommodate changes to the funds rate. As the U.S. economy overall and employment specifically have recovered, the FOMC has signaled a need to respond by changing the rate. And financial observers around the globe are anxious about how the FOMC will respond. If at some point in the future the FOMC moves from a target range to a discrete target, FRED will also need to respond: In this case, the FRED team plans to change the lower-bound and upper-bound series to a commensurate data point to solve this issue. This method will ensure that the history of the range remains intact, while allowing FRED users to present the data in the simplest way possible. We will not combine the series, create a new series, or update the DFEDTAR series.

How to make this graph: The FRED Team prefers to present these data by creating one graph with the three aforementioned series. First search for and add DFEDTAR to a graph. Next use the “Add Data Series” menu below the graph to search for DFEDTARL and DFEDTARU in the field that asks you to “Type keywords to search for data.” Select these series and add them to the graph with the “Add Series” button.

Suggested by Travis May.

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


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