Risk of Tighter Money Sparks Debate Over the Fed Funds Rate (1)

The amount of spare cash flowing around in the US financial system is poised to shrink over the coming months, rekindling the debate about how to assess money supply tightness and which benchmark rates the Federal Reserve should actually be targeting.

A host of voices, including the Cleveland Fed’s President Beth Hammack, JPMorgan’s Teresa Ho and Wrightson ICAP’s Lou Crandall, have pointed out limitations in the fed funds rate, with some suggesting the US central bank should ditch it and use another metric to gauge money supply.

Once a robust avenue for overnight interbank lending, the fed ...