This photo shows the US Federal Reserve Building, the central banking system of the United States, in Washington. (AFP PHOTO/Karen BLEIER)
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For all the talk about when Federal Reserve policymakers are going to raise interest rates, they haven't quite figured out how to do it.While its main new tool has enabled the Fed to exert more influence over money-market rates in the past year, strategists from Barclays Plc to Goldman Sachs Group Inc. say the program is too small to prevent rates from falling when officials want them to climb.In the past, the Fed increased the cost of overnight bank borrowing by raising the funds rate.It has been evident since 2008, when the Fed gained the ability to pay interest on excess reserves, that the new rate wasn't anchoring borrowing costs as envisioned. The reverse repo program thus far has helped provide a floor for the funds rate, which was 0.11 percent Tuesday.The central bank envisions the fed funds effective rate, which averaged 0.12 percent this year, floating between the reverse repo rate and IOER.Fed funds opened Thursday at 0.12 percent, according to ICAP Plc.
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