The Greenspan Floor Time Approach

The Greenspan Floor Time Approach is a method for managing interest rates used by the Federal Reserve. It involves setting a baseline interest rate, known as the "floor," which is the rate the Fed pays on reserves held by banks. This floor effectively limits how low borrowing costs can go, helping the Fed influence economic activity and inflation. By adjusting this floor, the Fed can steer short-term interest rates, supporting economic stability and growth while controlling inflation. The approach provides a transparent framework for monetary policy decisions anchored on the relationship between the floor rate and other market rates.