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Why does NPR refer to the interest rate as "near zero"?
September 2, 2011 12:54 PM   Subscribe

Why does NPR always refer to the US Federal interest rate as "near zero" rather than a specific amount? Googling shows it's between 0 and 25 basis points. What is the exact amount, and why is it not referred to exactly?

I'd also be interested to hear if other media sources report the rate in a similar fashion. I've avoided asking this question for several months already in case it was just a fluke in a few reports, but I listen to NPR almost every day, and recall not a single instance of the rate being reported exactly. It is always reported as "at or near zero" or "near zero".
posted by odinsdream to Work & Money (20 answers total) 2 users marked this as a favorite
 
Because a radio announcer saying "twenty-five one-hundredths of one percent" is quite a mouthful".
posted by dgeiser13 at 1:02 PM on September 2, 2011 [1 favorite]


Isn't it because it fluctuates as the Fed conducts its open market operations?
posted by MarkAnd at 1:07 PM on September 2, 2011


Because even 0.25% is, from the standpoint of someone who actually cares about the economy, effectively zero.
posted by introp at 1:10 PM on September 2, 2011 [1 favorite]


If the minute fluctuations of that number matter to you, NPR is never going to be your source for them.
posted by griphus at 1:12 PM on September 2, 2011 [1 favorite]


Because a radio announcer saying "twenty-five one-hundredths of one percent" is quite a mouthful"

"A quarter percent" isn't bad, though.
posted by madcaptenor at 1:17 PM on September 2, 2011


0 to 25bps is literally what the Fed says in its latest statement. Usually the Fed sets a specific target, but it doesn't want to specifically target 0 for reasons I don't fully comprehend (probably having to do with the difficulty of achieving an effective Fed Funds rate of 0 through open market operations).
posted by mullacc at 1:23 PM on September 2, 2011


Because a radio announcer saying "twenty-five one-hundredths of one percent" is quite a mouthful".

That's why basis points exists as a terminology. 10 basis points = 0.10 %
posted by odinsdream at 1:24 PM on September 2, 2011


0 to 25bps is literally what the Fed says in its latest statement. Usually the Fed sets a specific target, but it doesn't want to specifically target 0 for reasons I don't fully comprehend (probably having to do with the difficulty of achieving an effective Fed Funds rate of 0 through open market operations).

This is the core of my question, I think. Previous to this, the exact amount was clearly defined and widely referred to. Fluctuations of even small amounts were clarified in terms of basis points and reported.

Why the lack of clarity at this point? It has to be a specific number, at least for specific transactions. If it's different depending on the transaction how is that defined and applied? I'm sure banks care quite a bit what the exact amount is.
posted by odinsdream at 1:27 PM on September 2, 2011


It's due to the audience. NPR is targeted to the general public, not to people in finance who care about specifics.
posted by Mister Fabulous at 1:28 PM on September 2, 2011 [1 favorite]


Why the lack of clarity at this point? It has to be a specific number, at least for specific transactions.

That's why there's a "target" Fed Funds rate an "effective" Fed Funds rate. The Fed Funds rate refers to interbank lending, not direct lending from the Fed. Direct lending is done through the discount window at the discount rate, which is a specific number. But Fed Funds is an active market like any other, except that the FOMC will intervene in order to keep the effective rate near its target.
posted by mullacc at 1:34 PM on September 2, 2011 [2 favorites]


Today's closing effective rate was 12bps, as you can see here.
posted by mullacc at 1:35 PM on September 2, 2011


I think its a matter of meaning on a few levels. Clarity is a tricky thing, its possible for a term to be less specific but more meaningful.

Most people likely don't know what a basis point is, so the public at large likely would either not know what you're talking about at all or conversely think a swing from 12 to 25 is significant. So NPR probably thinks that while "Next to zero percent" may be less specific then "8 basis points" but feal the former is more meaningful to their audience then the latter.
posted by bitdamaged at 1:48 PM on September 2, 2011 [2 favorites]


I should say "erroneously think a swing from 12 to 25 is significant to them"
posted by bitdamaged at 1:50 PM on September 2, 2011


"A quarter percent" isn't bad, though.

And then the innumerate people will think they meant 25%.
posted by dgeiser13 at 1:52 PM on September 2, 2011 [1 favorite]


> That's why basis points exists as a terminology. 10 basis points = 0.10 %

I have no idea what a basis point is and I listen to NPR almost exclusively.
posted by dgeiser13 at 1:54 PM on September 2, 2011 [1 favorite]


I have no idea what a basis point is and I listen to NPR almost exclusively.

The only show I've ever heard the rate be referred to in basis points is on Marketplace, where it makes perfect sense to use the terminology.
posted by Mister Fabulous at 2:37 PM on September 2, 2011


As a financial industry outsider, "near zero" is far more meaningful to me than a particular basis point or a range of basis points.
posted by jsturgill at 2:59 PM on September 2, 2011


This is an interesting question to me because for many years I was tempted to post a very similar question here: "Why did NPR always report how much the interest rate was being decreased by, but they never said what the actual value was?" But now that the Fed & etc. are actually saying effectively zero that's what NPR is parroting.
posted by Rash at 4:04 PM on September 2, 2011


A basis point is a percent of a percent; one part in 10,000.
posted by flabdablet at 4:33 PM on September 2, 2011


Agree with Mister Fabulous.
posted by the foreground at 3:57 AM on September 3, 2011


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