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: