Fed could try to make benchmark rate more reliable in overhaul – FT

The FT reports that the Fed is exploring an overhaul of the Fed funds rate:

According to people familiar with the discussions, the Fed could redefine its main target rate so that it takes into account a wider range of loans between banks, making it more stable and reliable.

QE and the zero bound have skewed the market and the Fed will now look to include eurodollar transactions, bank commercial paper and wholesale certificates of deposit between banks.

The Fed discussed the benchmark in the minutes yesterday and the decisions could have some major consequences for the short-term lending market but the Fed will work with banks to smooth the process. For broader markets, I can’t imagine it will make much of a difference.