Federal Reservve Near Zero Marginal Costs, Essay Example

A benchmark on adjusted rates and federal funds rates to the interbank lending overnight is the economic activity that tends to add or withdraw reserves out of the banking system. Federal Reserve officials deliberated at their minutes meeting on about the diminutive-term interest rates that will change its past marginal cost from nearly zero. It has affected mortgages, credit cards and business loans on their borrowing costs, lowering the fed rates, reserves would raise costs against interbank lending as an opposite effect.At the central bank, they think that new reserves will not be as effective to use fed fund rate alone. So, they experimented for difficult new tools to alleviate the pressure on [Treasury] bills, financial crisis of the financial system. The Fed and the central bank are testing several optimized plan(s) for overnight bankreserves to set aside for their interest rates to set at 0.25% as the Fed takes money from financial institutions in return for interest. Whereas, the central bank is considering a tool for the interest rates in their overnight interbank lending from a variety of monetary source of funds to the Federal Reserve.  They also reported an arrangement that would allow bank institutions to act as collateral in lending transactions with sequestered creditors all throughout policy normalization at the Federal Reserve. While others like the Federal Reserve Bank of New York, James McAndrews, have proposed a three-party contractbetween the financial institution, the Fed, and a moneylender to make the banks to create accounts with the financial institutions as collateral for their own money funds.

Work Cited

Pedro Nicolaci Da Costa. “Federal Reserve Could Add to Toolkit for Raising Rates.”The Wall Street Journal: Business. Real Time Economics.  Web. Nov. 21, 2014. http://blogs.wsj.com/economics/2014/11/20/federal-reserve-could-add-to-toolkit-for-raising-rates/