A household reading the Federal Reserve's March 15, 2017 announcement could easily mistake a policy number for a new bank offer. The FOMC raised its federal funds target range to 0.75–1 percent. Its accompanying implementation note set interest on required and excess bank reserve balances at 1 percent from March 16. Neither figure is a mandated return on a family's savings account. [monetary20170315a][monetary20170315a1]

The distinction is about who receives the payment. Reserve interest concerns balances at the Federal Reserve; the note does not instruct banks to credit retail depositors at the same rate. It also raises the primary credit rate to 1.50 percent, effective March 16. That is a separate central-bank lending instrument, not a mortgage quotation or a credit-card contract. [monetary20170315a1]

Workers enter the statement through a different channel: the Committee's employment objective. Officials said the labour market had strengthened and described policy as still accommodative. They expected further improvement with gradual adjustments. Those were assessments and expectations, not evidence that this particular increase had already created jobs, raised wages or changed a borrower's monthly payment. [monetary20170315a]

For a public-interest reading, the useful comparison is therefore between an announced institutional rate and an actual household offer. These two Fed documents establish the first, not the second. Our interpretation is that judging who benefits requires keeping that gap visible: a bank's reserve payment cannot stand in for a saver's return, and a policy objective cannot substitute for evidence about workers' incomes. [monetary20170315a][monetary20170315a1]

Source documents

  1. Federal Reserve issues FOMC statementhttps://www.federalreserve.gov/newsevents/pressreleases/monetary20170315a.htm
  2. Implementation Note issued March 15, 2017https://www.federalreserve.gov/newsevents/pressreleases/monetary20170315a1.htm