Federal Funds Rate

Motley Fool  Apr 3  Comment 
The average interest rates for most types of home loans held steady, despite expectations that they were going to rise.
Motley Fool  Mar 22  Comment 
Other than jumbo loans, the good news just keeps on coming for would-be home buyers, despite the Federal Reserve's recent hike to its benchmark rate.
The Hindu Business Line  Mar 20  Comment 
After much nail-chewing, it finally happened. The markets are abuzz with the news that the US Federal Reserve has hiked interest rates by another 25 basis points last week. But wait a minute. That’s n...
Benzinga  Mar 15  Comment 
At 2 p.m. EST, the Federal Reserve is expected to announce another interest rate hike. While most Americans are familiar with the idea of a federal interest rate, interest rates on different U.S. bonds, bank accounts, credit cards, mortgages and...
The Economic Times  Mar 15  Comment 
Traders have priced in more than a 90 per cent chance of a quarter point rate increase, according to Fed fund futures.
MarketWatch  Mar 14  Comment 
The Federal Reserve said Tuesday that its interest-rate policy committee will meet as planned on Tuesday and Wednesday despite the winter storm that has hobbled much of the Northeast. The Fed is widely expected to raise the range of its benchmark...
newratings.com  Mar 7  Comment 
BRUSSELS/FRANKFURT/PARIS (dpa-AFX) - European markets may open slightly higher on Tuesday after U.S. stocks ended well off their day's lows overnight despite concerns surrounding the French presidential race, rising geopolitical tensions and...
newratings.com  Mar 3  Comment 
WASHINGTON (dpa-AFX) - The Federal Reserve is likely to raise interest rates in March barring any unpleasant surprises, Fed Chair Janet Yellen said Friday. "At our meeting later this month, the Federal Open Market Committee will evaluate whether...
MarketWatch  Jan 12  Comment 
The Federal Reserve may be in a better position to reduce the size of its balance sheet now that the federal funds rate his been increased, said St. Louis Fed President James Bullard on Thursday.


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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