“What about all those with excellent credit who borrow at the Prime Rate?”
They borrow from commercial banks. The Fed only lends to member banks, not businesses.
“Why does the funds rate have such an impact on the short end of the yield curve if it’s only a target rate?”
Because retail banks aren’t likely to lend at a cheaper rate than they can borrow from the Fed.
“The Fed sets short term rates rather than the market. I don’t know why any Conservative would support that.”
The Fed can only set a target range for short rates. It’s inherent in their power to create credit.
In order to get away from that you’d have to go back to the previous system where JP Morgan acted as America’s lender of last resort and unofficial central banker. And in 1907 Morgan told Congress that that was becoming an impossible task for even a bank as large as his to do.
Morgan was the driving force behind creating the Fed so that he wasn’t stuck with the responsibility for backstopping the American banking system.
“What about all those with excellent credit who borrow at the Prime Rate?”
They borrow from commercial banks. The Fed only lends to member banks, not businesses.
...
The Prime Rate is directly tied to the Funds Rate. It’s the Funds Rate plus a margin and it’s the same at all banks.
“Why does the funds rate have such an impact on the short end of the yield curve if it’s only a target rate?”
Because retail banks aren’t likely to lend at a cheaper rate than they can borrow from the Fed.
...
The yield curve applies to federal government securities only.