Interest Rate Volatility in Historical Perspective
On October 6, 1979, the Federal Reserve changed its procedures for implementing monetary policy. Prior to that date, the Federal Reserve had sought to bring the rate of monetary growth in line with its desired target rate of growth through changes in the federal funds rate. Through its open market operations, the Fed supplied or absorbed whatever level of reserves was necessary to achieve the targeted federal funds rate. To influence the price of reserves (i.e., the federal funds rate), the Fed had to give up control over the quantity of reserves.