Dallas Fed President Advocates Shift in Monetary Policy Approach

According to PANews, Dallas Federal Reserve President Lorie Logan has suggested that the Federal Reserve should abandon the federal funds rate as the benchmark for executing monetary policy. Instead, she proposes considering an overnight rate linked to the more stable U.S. Treasury collateral loan market. Logan argues that the federal funds rate target is outdated, with fragile connections between the rarely used interbank market and the overnight money market that could abruptly break. She emphasized that updating the mechanism for implementing monetary policy would be part of an efficient and effective central banking system. Logan stated, "Some might say that since everything is currently functioning well, there is no need for action. However, if the transmission mechanism between the federal funds rate and other money markets fails, we will need to quickly find an alternative target. I do not believe making significant decisions under time pressure is the best way to promote a strong economic and financial system." She highlighted that the Tri-Party General Collateral Rate (TGCR) could offer the most benefits. Logan noted that TGCR covers over $1 trillion in transactions daily, allowing changes to effectively transmit through the money market. In contrast, the federal funds market currently averages less than $100 billion in trading volume.