A Conversation with Mary C. Daly at the San Francisco Fed’s 2025 Western Bankers Forum

Thank you for inviting me to participate in this important workshop. These in-depth discussions about how the Fed implements monetary policy are incredibly valuable. I’m going to get back to the very basics: the target interest rate that policy implementation aims to control. As everyone here surely knows, the Federal Open Market Committee (FOMC) primarily adjusts the stance of monetary policy by changing the target range for the federal funds rate. For almost as long as the FOMC has issued post-meeting FOMC statements, they have reported what the committee decided about the fed funds target. And the FOMC has repeatedly affirmed the centrality of the fed funds target in establishing its policy stance. My aim today is to argue that the time has come for the FOMC to prepare to target a different short-term interest rate. I will make four points. First, the Fed has evolved its operating targets through the years to maintain influence over monetary conditions as the financial system evolved. Updating the target from time to time is part of how we manage the central bank efficiently and effectively on the public’s behalf. Second, money markets have changed greatly since the FOMC began publicly targeting the fed funds rate in the mid-1990s. The fed funds target is outdated. Third, while targeting fed funds currently provides effective control of broader monetary conditions, the connections are fragile and could break suddenly. The FOMC should take that risk off the ta *FED'S LOGAN: TIME HAS COME TO PREPARE FOR NEW BENCHMARK RATE Fed's Logan: Modernizing rate control system is technical in nature.

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