Tweak to U.S. payment to banks may bolster Fed's credibility

- A small cut to an interest rate little known beyond Wall Street could lead to a big payoff for the Federal Reserve’s most important asset: its credibility.

Instead it made what Chair Jerome Powell insisted was nothing more than a minor technical adjustment to “interest on excess reserves,” or IOER, that could nudge borrowing rates lower by a few hundredths of a percentage point. The U.S. central bank on Wednesday left its target policy rate unchanged at 2.25-2.50% and said that the global economy warrants patience on making any further changes on rates.

The fed funds rate rose to 2.45% on Tuesday and has remained there since, although after the Fed’s announcement the rate markets expect in three months fell to 2.386% in late Wednesday trading, the lowest level since December. Analysts agreed, saying the tweak is also very unlikely to make any difference in the economy, or in important rates like those on mortgages, government bonds or what people earn on savings they keep at the bank.

These days it sets rates by changing what it pays banks to keep money in reserve at the Fed rather than by manipulating the amount of reserves.

I had a friend do that in a community family business- One result still pending third party: I personally can't wait for the outcome.

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