Since its February meeting, the Federal Open Market Committee (FOMC) has chosen to maintain the federal funds rate near and intended level of 5.25%. The funds rate (the interest rate banks pay on overnight loans to each other) is an anchor for other short-term rates. Between June 1995 and February 1996, the FOMC voted to lower the intended funds rate in three increments of 25 basis points each. The yield on one-year Treasuries fell about two percentage points from its January 1995 peak, while the yield on the three-month Treasury bill dropped to below 5%. That these yields had fallen below the overnight rate suggested an expectation of further funds-rate cuts.
Suggested citation: “Monetary Policy,” Federal Reserve Bank of Cleveland, Economic Trends, no. 96-09, pp. 02-04, 09.01.1996.