February 18, 2015 / 7:08 PM / in 4 years

Fed debates tweaks to policy tools for raising rates: minutes

U.S. Federal Reserve Chair Janet Yellen holds a news conference at the Federal Reserve in Washington December 17, 2014. REUTERS/Kevin Lamarque

(Reuters) - Federal Reserve officials are debating changes to how they may deploy their policy tools when they begin lifting U.S. short-term interest-rates from their current near-zero level, minutes from their January meeting show.

The Fed decided last year to use the so-called overnight reverse repurchase facility, known as RRP, to supplement two other more familiar policy rates when the time comes to lift borrowing costs, and in the most recent meeting debated raising the cap temporarily on the facility.

Doing so could set a firmer floor under the target interest rate, many participants thought, while posing “limited” risks, the minutes said.

Under the reverse repo facility, the central bank offers Treasury securities in exchange for cash from banks, money market funds and mortgage finance agencies, effectively paying them to park funds with the Fed. The repo rate would keep borrowings costs from falling below a set floor; the Fed would also use the interest rate paid on excess bank reserves to set a ceiling for borrowing costs.

Fed officials also discussed the possibility of adjusting the relationship between excess reserves and the overnight repo rate so as to better guide interest rates towards the fed funds target rate, the minutes showed.

Reporting by Ann Saphir; Editing by Andrea Ricci

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