As anticipated, the FOMC voted on both proposals in front of it. There should only be the one, but even routine monetary policy no longer is. Alan Greenspan’s Fed charged ahead with seventeen consecutive moves (the last few completed under Ben Bernanke) with little discussion about uncertainty in the economy (though there was, conundrums and all) let alone in the very place the central bank is supposed to operate with impunity.
The result of today’s action is the first of what is almost certainly going to be asymmetry moving forward. Dating back all the way to December 2008 when policymakers mercifully scrapped the singular federal funds target, the FOMC object had been to maintain a 25bps band or corridor in which they would accept actual trading. As of now, that band has been reduced to 20bps; RRP was increased +25bps; IOER only +20bps.
It immediately brings to mind not just IOER’s failure, as noted before, but also the ECB’s. The European central bank had tried narrowing its corridor starting in May 2013, though with everything reversed. It is a topic that deserves greater devotion at a future date (was it Bernanke’s uttering the word “taper” that ignited the big storm that spring and summer or was it the ECB’s narrowed corridor announced the same day?), so for now I’ll just summarize their experience as the same as it was for the Fed in 2007 forward – losing control.