Federal Funds Rate

QUOTE AND NEWS
newratings.com  Jul 27  Comment 
WASHINGTON (dpa-AFX) - As was widely expected, the Federal Reserve announced Wednesday it has decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The Fed's statement noted that information received since...
Motley Fool  Jul 15  Comment 
A floating-rate note can protect you from rising interest rates.
The Economic Times  Jun 22  Comment 
In testimony before Congress, Yellen expressed general optimism about the U.S. economy and said gradual hikes in the federal funds rate were likely to be needed.
Forbes  Jun 19  Comment 
As you know, the FOMC met last Tuesday and Wednesday and did not change the target Federal Funds rate from its range of one quarter to one half percent. The main reason was the very weak May employment report, which included downward revisions for...
Yahoo  Jun 17  Comment 
The U.S. interest rate that the Federal Reserve targets to conduct its monetary policy rose to 0.38 percent on Thursday, a day after policy-makers left key interest rates unchanged, according to Fed data ...
Clusterstock  Jun 15  Comment 
The Fed just announced that they intend to keep the target fed funds rate in the same 0.25-0.5% range they have been targeting since December 2015. They also gave us some idea about what they think is coming in the future. The "dot plot," part...
newratings.com  May 26  Comment 
WASHINGTON (dpa-AFX) - The Federal Reserve is likely to raise interest rates in the near term, according to Fed. Gov. Jerome Powell. "If incoming data continue to support those expectations, I would see it as appropriate to continue to gradually...




 
TOP CONTRIBUTORS


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.

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