The SOFR and the Fed's Influence Over Market Interest Rates
18 Pages Posted: 25 Jun 2021
Date Written: June 15, 2021
The secured overnight financing rate (SOFR) serves as the successor to LIBOR (London interbank offered rate) as a benchmark rate for lending in the US dollar. Our results show that the SOFR aligns with the Federal Reserve’s policy target more closely than LIBOR. In addition, short-term market rates are more responsive to the SOFR than to LIBOR. Our findings highlight the advantages of the new benchmark rate over its predecessor.
Keywords: SOFR, LIBOR, Target Fed funds rate
JEL Classification: E43, E58, G12
Suggested Citation: Suggested Citation