Apr
4
What action in the open market to take to induce a 3% to 1.75% decrease in the federal funds rate?
April 4th, 2010 posted by
admin
In the fall of 2002 the Fed voted to decrease the federal funds rate target on several different occasions, reducing it from 3% to 1.75%. What action in the “open market” would the Fed’s trader have had to take, other things equal, in order to induce this decrease in the federal funds rate?
Jurij-EU Ω² says:
April 6th, 2010 at 6:53 pm
Fed’s trader should conduct open-market purchase.
FED has few options how to achieve this 1.75% target.
First is reducing MFI reserve requirements.
Second is reduction of discount rate below current federal funds rate.
Third is to conduct open-market purchase – usually government securities or other financial instruments.