The Federal Reserve Bank of New York (New York Fed) publishes the effective federal funds rate (EFFR) on a daily basis. On February 2, 2015, the New York Fed announced plans to enhance the EFFR calculation process by transitioning the data source from data supplied by federal funds brokers to transaction-level data collected from depository institutions in the FR 2420 Report of Selected Money Market Rates (FR 2420). In addition, the New York Fed announced plans to publish an additional rate—the overnight bank funding rate (OBFR)—calculated based on both federal funds transactions and the Eurodollar transactions of U.S.-managed banking offices, as reported in the FR 2420.
As part of the preparation for these changes, the methodology for calculating the EFFR was reviewed to determine if enhancements could be made to provide a more robust measure of trading conditions in the federal funds market. Analysis conducted as part of the review suggested that changing the calculation of the EFFR to a volume-weighted median—the rate associated with transactions at the 50th percentile of overnight transaction volume—would have a number of advantages relative to the current practice of using a volume-weighted mean. As noted in the minutes of the June 2015 Federal Open Market Committee (FOMC) meeting, the results of the review were discussed with the FOMC, and the New York Fed will implement this change to the calculation methodology concurrently with the change in data source to the FR 2420. The OBFR will also be calculated using a volume-weighted median when publication commences. The change to a volume-weighted median for the EFFR and publication of the OBFR are expected to be implemented in the first few months of 2016, after revisions to the FR 2420 data collection are complete and the reported data are well-established. As noted in the February statement, the Desk will announce a specific implementation date and additional information closer to the effective date of the changes.
For both the EFFR and OBFR, use of a volume-weighted median is expected to enhance the resilience of the calculated rates to various measurement issues. Under most circumstances the volume-weighted median and volume-weighted mean measures are expected to result in similar levels for these rates. No inferences should be drawn about changes to the stance of monetary policy from the implementation of this revision.
In order to provide insight into the attributes of the volume-weighted median, a technical note is being issued concurrently with this statement. This technical note discusses the historical relationship between the two central tendency measures and provides analysis that supports the choice of the volume-weighted median. In addition, the time series data shown in the technical note are available for download below. These data include an estimated historical series of a volume-weighted median rate, based on brokered federal funds data, from January 3, 2005 to June 17, 2015.
