Fed to adopt new benchmark interest rate

Written by Bloomberg | Updated: Jan 28 2010, 03:32am hrs
Federal Reserve policy makers are considering adopting a new benchmark interest rate to replace the one theyve used for the last two decades.

The central bank has been unable to control the federal funds rate since the September 2008 bankruptcy of Lehman Brothers Holdings Inc, when it began flooding financial markets with $1 trillion to prevent the economy from collapsing. Officials, who start a two-day meeting on Tuesday, have said they may replace or supplement the fed funds rate with interest paid on excess bank reserves.

One option you might want to consider is that our policy rate is the interest rate on excess reserves and we let the fed funds rate trade with some spread to that, Richmond Fed President Jeffrey Lacker told reporters on Jan 8 in Linthicum, Maryland.