Federal Funds Rate

The Economic Times  Sep 25  Comment 
Yellen said improvements in the US economy will likely entail an initial increase in the federal funds rate later this year.
MarketWatch  Sep 19  Comment 
Conditions in the U.S. economy justify a 25-basis-point increase in the federal funds rate, says the president of the Richmond Fed,
Benzinga  Sep 17  Comment 
Fed Officials See Fed Funds Rate at a Median of 2.625% at End of 2017 Fed Officials See Fed Funds Rate at a Median of 3.375% at End of 2018 Fed Officials See Fed Funds Rate at a Median of 3.5% in Longer Run © 2015 Benzinga.com. Benzinga...
Clusterstock  Sep 17  Comment 
The Federal Reserve is keeping interest rates nice and low for a very long time. At the conclusion of its long-awaited Federal Open Market Committee (FOMC) meeting, the Fed announced it would keep its fed funds rate target range at 0 to 0.25%,...
CNBC  Sep 13  Comment 
As a policy tool, the federal funds rate just isn't what it used to be.
newratings.com  Sep 11  Comment 
VIENNA (dpa-AFX) - The European markets are likely to open higher on Friday, tracking gains on Wall Street overnight and the largely positive cues from Asia as China-related concerns faded. That said, the markets may not chalk up big gains,...
Forbes  Sep 4  Comment 
Like Wagner’s music, the August jobs report is better than it sounds. Not great, but good enough to permit a long-overdue tiny adjustment in the Federal Funds rate.
Yahoo  Aug 19  Comment 
Only one Fed policymaker was ready to vote for a rate hike at the central bank's July 28-29 policy meeting, while some others "viewed the economic conditions for beginning to increase the target range for the federal funds rate as having been met...


The Federal Funds Rate (FFR) is the interest rate that banks pay to borrow federal funds. Federal law requires that banks hold a certain percentage (typically 10%) of the assets in their demand accounts (checking and savings accounts) with the Federal Reserve. These are referred to as federal funds. If a bank below its minimum federal funds reserve requirement, then it can borrow federal funds from another bank that has a surplus in its account.

How the Fed Funds Rate is Set

The Fed does not set the FFR directly. Instead it sets a nominal or desired rate and then carries out open market operations-- the buying and selling of government or other types of securities to influence money supply. When the fed sells large amounts securities to investors, it takes the proceeds from the sale and holds them, essentially removing money from the market and increasing interest rates. When it buys large amounts of securities, it injects money into the market lowering interest rates.

How the FFR affect banks

Loans involving Federal Funds are typically very short in duration, overnight. These loans are often a necessary part of a banks business. Banks depend on demand accounts for a substantial portion of the funding for the loans that they make. On any given day, a bank may lose more in deposits than it takes in or the demand for its loans may temporarily outstrip the assets that it has available, requiring it to draw upon the assets in its reserve account with the Fed. Borrowing funds from another banks reserve account is an expedient way for the bank to raise capital.

How the FFR affects the general economy

When the Federal Reserve raises the FFR it discourages banks from borrowing Federal Funds and in turn lowers the amount of money that banks are able/willing to lend. This has a broader dampening effect on the economy and can lead to slower economic growth. When the Fed lowers the FFR, it has the opposite effect.

Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki