The Fed Funds Market since Last June
It find this graph from Steve Cecchetti very frightening indeed:
Steve comments:
http://www.cepr.org/pubs/PolicyInsights/PolicyInsight21.pdf: These data regularly are remarkable. Historically, the open market trading desk in New York has been very good at keeping the market-determined federal funds rate close to the target, and the range of trading has been a narrow band around that same target. "Normal" behavior is what we see in the left-hand portion of the figure. Suddenly, beginning on 9 August 2007, the effective rate is much more variable around the target and there is a clear tendency to come in below the target. Not only is the market "soft" in mid- to late-August, but the trading range explodes. The daily low is often well below the target, while the daily high is frequently above the primary lending rate. Prior to the cri- sis, the high end of the federal funds trading range exceeded the discount rate roughly one in ten business days. Since the start of the crisis, the rate has gone up to one in three days. If anything, it looks as if the stigma associated with borrowing increased during the crisis...
