Fed’s monetary framework requires more tweaks

With the effective fed funds rate getting close to the top of its target range again, there’s a good chance that the Fed will combine a 25bp hike in the fed funds target range in December with another smaller 20bp hike in the interest on excess reserves (IOER) rate. That should be enough to keep the effective fed funds rate close to the middle of the target range. But if it begins to creep up again, we suspect the Fed would respond by bringing its quantitative tightening to a premature end.