Just before I went on holiday on August, I offered
up a cheeky chart of the Fed funds rate, suggesting that the Fed had stealthily
cut rates between meetings. (This was before it actually cut the discount rate.)
Greg Mankiw resurrects
the meme today, noting that the Fed funds rate for August as a whole was
5.02% – essentially a quarter-point lower than the official target rate
of 5.25%.
So here’s an updated version of the chart, showing what’s really been happening
to the Fed
funds rate of late.
Messy, eh?
It seems to me that the Fed has much more important things to do right now
than fiddle about in the overnight markets trying to ensure that the Fed funds
rate always ends the day within a basis point or two of the target rate. And
given the general screwiness at the short end of the curve, a bit of volatility
here is only to be expected: trying to keep this number in a very narrow range
would probably be impossible in any event.
It almost seems to obvious to mention, but the target Fed funds rate is vastly
more important, especially at a time like this, than the actual Fed funds rate.
If and when credit markets calm down a little, then we can start worrying
about whether the Fed is hitting its target.