Monetary Policy: An Interpretation of 1994, a Challenge for 1995

In the realm of monetary policy, 1994 was an eventful year. In February, the central bank’s Federal Open Market Committee (FOMC) engineered the first of what would eventually number six increases in the closely watched federal funds rate — the interest rate that banks charge each other for overnight loans. In contrast to 1993, a year characterized by remarkable stability in short-term interest rates, these actions culminated in federal funds rates that, by year-end, matched levels not seen since 1989.