Federal Funds Rate

Yahoo  Nov 18  Comment 
U.S. stocks gained steam and the dollar touched a fresh seven-month high on Wednesday after minutes from the most recent Federal Reserve policy meeting showed a core of officials backed a possible interest rate hike in December. "The greatest...
Yahoo  Nov 18  Comment 
"I think the market is ready and comfortable for an increasing Fed funds rate," said Alan Rechtschaffen, portfolio manager at UBS Wealth Management Americas in New York. The Dow Jones industrial average (.DJI) rose 247.66 points, or 1.42 percent,...
Forbes  Nov 8  Comment 
The surprisingly strong employment report that we got on Friday quickly upped the odds for a Fed Funds rate hike in December.  October delivered strong job creation, surging average hourly earnings, a decline in the unemployment rate, essentially...
Yahoo  Nov 4  Comment 
Short-term bond yields spiked Wednesday morning and fed fund futures rose 2 points.
Forbes  Nov 1  Comment 
It happened again last week just as it has happened out in front of every FOMC meeting since the spring of 2013 when talk of a Fed Funds rate hike was first tossed into the conversation. Smart financial guy forecasts make odds, bets are placed,...
MarketWatch  Oct 9  Comment 
Interest rates could be below 1% at the end of 2016, Chicago Fed President Charles Evans said Friday. In a speech in Milwaukee, Evans stressed that the timing of the first rate hike was not as important to him as the pace of subsequent moves....
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%,...


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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