If the level of the fed funds rate is so important why on earth does it move in increments of 25 bps? If the level is really so important I would think it would make a significant difference whether it was at 3.5 or 3.65.
I’ve wondered that myself…why not increments of 5 bps???
The fed tools are sledgehammers, not tweezers. 5 bps would do nothing.
Remember that the Fed uses open market operations for finer monetary supply adjustments, but nothing says the fed has to do quarter point units. There’s also the bank reserve requirement, which is the valve of last resort for pumping up the money supplies.
And there’s the plunge protection team. They work in the same office.
It’s bad enough that 12 guys sit in a room and decide what the interest rate ought to be. I would like it better if we all voted on the Internet or similar. To have them fine tune by 5 bp would have me rolling my eyes every day.
right the same people who voted bush into office? should decide monetary policy.
Alas, one of those was me. I’m sorry. Edit: Oh and I would bet big that at least 11 of those guys voted for Bush. They were more wrong than the rest of us.