In recognition of this fact – as well as the weak economic outlook and the current strains on banks and the financial system – the Federal Deposit Insurance Corporation recently announced plans to extend from five years to seven years the period over which it would restore the deposit insurance fund to its minimum required level.
The short-term rate is the policy instrument under the control of the central bank; via the expectation channel, its future path influences current economic circumstances and decisions. Specifying a trajectory of future rates in today’s projections is therefore a delicate problem with regard to the signals about the future course of monetary policy given to outside observers.