Why does the Fed always move its policy rate in increments of a quarter of a per cent? Why not tenths, thirds or halves? Because it has worked, and now we’re used to it. From Gary Richardson at University of California, Irvine: “In the 1990s [the Fed] switched to actually targeting the federal funds rate . . . Alan Greenspan [gave] directives to the trading desk to target a specific federal fund rate, but they realized you cannot be incredibly precise. So they settled on a smaller increment [of difference] to target, and then communicated that out to the market. They settled on 25 basis points as minimal steps to make, and that worked, and the [open market] committee decided to keep using it.”

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