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2025-12-17 09:21:04
[Dallas Fed Research: Weakening Monetary Policy Transmission Effects, Calls for Fed to Adjust Target Rate] 1. A recent study by the Federal Reserve Bank of Dallas shows that the role of the federal funds rate in monetary policy transmission is weakening, reinforcing calls for the Fed to adjust its policy target rate. 2. The study points out that the TGCR (Tripartite Generally Guaranteed Repurchase Agreement) rate, generated by tripartite general repurchase agreements, outperforms the traditional federal funds rate in transmitting monetary policy. Dallas Fed President Logan has recently publicly called for reform, arguing that the Fed should consider shifting its policy target from the federal funds rate to the TGCR, as the latter better reflects real-world short-term funding costs. 3. The study argues that while targeting the federal funds rate still effectively influences overall monetary conditions, "this link is fragile and could be suddenly broken," and the Fed should proactively manage this risk. However, there are currently few signs that the Fed will adjust its target rate anytime soon, and some observers believe that this reform issue may be shelved and unlikely to be pushed forward before the end of Chairman Powell's term.
