Do You Notice the Subtle End of ZIRP?

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There was not much reaction to the latest Federal Open Market Committee statement on Wednesday – and nor should there have been. After all, there’s been no real change in the language employed.

But examine this chart, mapping the overnight Fed Funds rate in the US over recent months:

The official range, established in December 2008, may remain at “zero to 0.25 per cent” – but the actual price of money is most definitely trending higher.

In fact, a little over 20 basis points is now typical in overnight trade. That might be a small rise, in nominal terms, from the 10 bps or so seen earlier in the crisis – but it’s certainly a shift away from the zero interest rate policy. America has stopped turning Japanese.

As the FT’s Mike Mackenzie noted earlier this month, the Fed Funds rate began edging higher in February after the Fed increased its discount rate for emergency loans to banks to 75bp from 50bp.

This apparent policy shift has been so subtle Mike seems to have been the only person to have have reported it!

Related links: Cut, paste, keep: ZIRP bonds edition – FT Alphaville

This entry was posted by Paul Murphy on Wednesday, April 28th, 2010 at 20:19 and is filed under Capital markets. Tagged with Fed funds, federal reserve, zirp. Edit this entry.

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