The Fed's New Target: Part II

Summary

In Part II, the podcast examines how the ongoing "Great Compression" of money‑market rates is pushing the Federal Reserve to replace its traditional overnight Fed Funds target with a new benchmark. It explains that overnight Fed Funds volume has collapsed since the 2008 crisis, leaving the current tool vulnerable to emerging interbank markets and misaligned with the true cost of dollar funding. The host outlines possible alternatives—administered rates like IORB or the overnight reverse repo, a basket of existing benchmarks, or a brand‑new rate—and argues that a well‑designed rates basket is emerging as the most viable successor.