Re:Federal Reserve raises rates by 0.75%
by cpeterso on Wednesday June 15, 2022 @07:09PM
(#31760610)
To avoid reacting too late, maybe the Fed should have a policy of always adjusting funds rate every month, even in a stable economy. Like TCP congestion control, the funds rate would tack up and down around the "optimal" value. This would also reduce the market surprises because people would know the rate will go up or down every month. And with smaller, more frequent changes, people can more easily anticipate which way the rate will tack.
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In an ideal world the Fed would not "set" any rates - it would be up to the market. However, the risk is there could be more volatility on the short end without the Fed 'anchor'. A compromise might be to greatly increase the target range from 25bp to funds target rate +/- 200 bp, lower bound 0.00 thus making a bounded floating rate. That might also require a shift in how lenders set rates on very short term debt to some type of period average, ie 3 or 6m average rate.