WASHINGTON (Reuters) - The U.S. Federal Reserve said on Wednesday it was altering its formula for paying interest on excess balances that banks keep with it in order to have less effect on overall interest rates.
It said the new formula sets the rate on excess balances at the lowest federal funds target rate minus 35 basis points.
The previous formula set it at minus 75 basis points.
"The board judged that a narrower spread between the target funds rate and the rate on excess balances at this time would help foster trading in the funds market at rates closer to the target rate," the Fed said in a brief announcement.
(Reporting by Glenn Somerville; Editing by James Dalgleish)
