What a zero percent interest rate is meant to do, and why it probably won’t work.

Ready for another cup of coffee? That’s what Ben Bernanke served up Tuesday, as he and his Open Market Committee announced that the “federal funds target rate” range would drop to zero to 0.25 percent, the lowest in its history and a plunge from the 1 percent target previously in effect. The Fed has now offered up 10 rate-cut jolts since September 2007, none of which have worked either to open up credit or to prop up the economy. So if you’re hoping this Fed fire sale will mean new credit, jobs, maybe even a pony, don’t count on it. What’s this latest cut designed to do, and why aren’t the cuts delivering?

In normal times, here’s how the Fed works. The “federal funds rate” is the amount of interest banks charge each other for overnight lending. Big banks have cash on deposit with each other and the Federal Reserve. When players in the economy—business and individuals—need cash, they go to the bank to withdraw money they’ve deposited or ask for loans. Banks often need to borrow from one another to meet these needs. If the federal funds rate is low, the cost to banks of lending to one another, and therefore to players in the larger economy, is reduced. That means more credit, which, today, is like a Thneed—something we’re told that everyone needs.

The Fed helps reduce the rate by buying Treasury bills from the banks. This means more cash for the banks, which makes their cost of lending to each other lower. The Fed can also create money by auctioning short-term loans, which the banks can use in the interim to provide loans—again, presto: more credit for you and me! So the “target” rate (announced Tuesday as a target range of zero to 0.25 percent) is the rate for overnight lending the Fed hopes other banks will charge one another after having tinkered with the plumbing. Strictly speaking, the Fed doesn’t control the federal funds rate; it can only influence it.

Usually, when we need to stimulate the economy, these moves by the Fed create a veritable ripple of good vibes. The Fed says that “changes in the federal funds rate trigger a chain of events that affect other short-term interest rates, foreign exchange rates, long-term interest rates, the amount of money and credit in the economy, and, ultimately, a range of economic variables, including employment, output, and the prices of goods and services.” But it’s been pretty clear of late that the Fed is missing the mark. Not only do we have more unemployment, less output, and falling prices; the target rate is nowhere near what the Fed wants. The “effective rate” at which banks lent to one another on Tuesday, before the Fed’s announced cut, was 0.18 percent: a long distance from the 1 percent target rate that was then the Fed’s policy.

Why is there such a difference? According to Carnegie Mellon professor Marvin Goodfriend, a former Fed VP, two other Fed activities are making banks less willing to lend to one another. First, it’s paying interest on the reserves banks keep with the Fed. This makes it less attractive for the bank to lend to one another: They would need to get much more than the interest the Fed is already offering (currently also 1 percent) to make it worthwhile. With the decreasing trust between even the biggest institutions, and with the trustworthy Fed ready to pay out, that’s unlikely.

Fannie Mae, Freddie Mac, and foreign banks have also contributed to the problem, because they have accounts with the Fed, but they don’t receive these interest payments. So they can lend out their Fed-housed money at a lower rate and still realize a return. Banks would rather borrow from these cheaper sources than from one another.