US Short interest Rates

Question 1

Fed’s Current operating regime: Target Bands

Answer 1

• the feds policy rate, fed funds, trades in a 25 bp band

- the upper and lower bands are set by the fed at FOMC meetings

Question 2

Fed Funds Market

Answer 2

The fed funds market is an interbank market in which cash balances at the Fed are traded

Question 3

Effective Fed Funds rate

Answer 3

The effective fed funds rate is the market price of bank reserves

Question 4

Four interest rates surrounding the fed funds target

Answer 4

• two administers rates
  
  • RRP ( reverse repo program)
  • IOER ( interest in exceed reserves)

-upper and lower targets that define the policy band around the target