Fed moves on the right track, but still has many miles to go

The Federal Reserve's efforts to rescue the US from financial collapse risks the eclipse of the central bank's benchmark interest rate as the most important signal of monetary policy.

Record injections of liquidity have driven the overnight lending rate between banks to less than half the 1 percent target set by officials last month. The gap is shifting investors' focus toward the amount of money in the banking system as a better gauge of Fed intentions, something San Francisco Fed President Janet Yellen last month called "a kind of quantitative easing."

"There has been a policy shift, but the Fed is not transparently announcing what it is doing and why," said former St. Louis Fed President William Poole, now a senior fellow at the Cato Institute in Washington. "Monetary policy works best when the markets understand what the central bank is doing."