FOMC rate question

[Graybeard]

Why is the overnight rate expressed as a range of 2 percentages? I have been wondering about this for some time. Right now it is 3.0-3.25%. I assume this means some banks pay 3% while others pay 3.25%?

 

[jebmke]

I'm no expert but I think that is the target range that they try to get the overnight rate to stay within. I don't think their tools are such that they set a rate and that is the rate. I think they make moves in the overnight market for money in order to get the rate to stay within that target range.

I may be completely wrong here; my spouse often says I am.

 

[MichaelB]

Why is the overnight rate expressed as a range of 2 percentages? I have been wondering about this for some time. Right now it is 3.0-3.25%. I assume this means some banks pay 3% while others pay 3.25%?

The Fed doesn’t have the authority to set a fixed rate or force banks to use a fixed rate, so it sets a range. This range is what banks use to charge each other to lend and borrow excess reserves overnight.

 

[Graybeard]

Thanks. Somehow I missed this thread and your replies, I was certain I started a new thread and when I couldn't find it I was about to ask the same question thinking I forget to hit the post button.

Anyway, I now see why there is a range. I always thought they set a specific rate like when someone borrows money they have an exact rate.