A Federal Reserve-convened committee has narrowed its search for a replacement to Libor, the inter-bank interest rate underpinning trillions of dollars of derivatives and other lending transactions throughout the financial system that has been rocked by fraud scandals in recent years.

A report released Friday by the Alternative Reference Rates Committee, a group that includes representatives from the private sector and regulators, proposed two possible replacements for the London Inter-Bank Offered Rate. The U.S. central bank's benchmark federal funds rate was considered, but ultimately discarded as an option because choosing it “could be seen as a constraint on changing the monetary policy framework” in the future, according to the report.

Jump-starting either of the proposed alternatives would require moving derivatives contracts that currently reference the fed funds rate to the new rate, which would further lessen the market's reliance on the benchmark that serves as the target of U.S. monetary policy.