Fed Funds Rate Is Near Target
The federal funds rate closed at 5% Wednesday, near the 5.25% target - but only after trading as low as 1% just minutes before the end of a two-week reserve maintenance period.
Temporary computer problems ensuing from Tuesday's AT&T system breakdown forced the market to stay open until 7 p.m. Wednesday, slightly later than the usual 6:30 closing. But that was earlier than the 8:15 closing Tuesday night.
The system problem Tuesday shut down First Chicago Corp.'s link to its Federal Reserve bank, temporarily preventing First Chicago from transferring funds normally. That hitch, combined with the funds-transfer problems created by the American Telephone and Telegraph Co. breakdown, left scores of other banks short of reserves until they got payments from First Chicago and other sources.
A New York banker said that at one point Tuesday he was waiting for $10 billion in payments from banks and the Federal Reserve in New York. The problem was later cleared up.
The Federal Reserve added funds aggressively Monday, Tuesday, and Wednesday in an effort to keep the system liquid. The effective fed funds rate of 5.44% for the week was close to the target rate.