Federal Funds Rate

QUOTE AND NEWS
newratings.com  Jul 15  Comment 
WASHINGTON (dpa-AFX) - The Federal Reserve may raise interest rates sooner than expected if the recovery in the U.S. labor market is sustained, Fed Chairman Janet Yellen will tell Congress Tuesday morning. "If the labor market continues to...
Jutia Group  Jul 11  Comment 
What led to the 2008/2009 stock market and real estate crash and subsequent Great Recession can be attributed to one factor: the sharp rise in interest rates that preceded that period. In May of 2004, the federal funds rate, the bellwether rate...
SeekingAlpha  Jun 19  Comment 
Perhaps one of the most influential books I've read over the last several years is "The Era of Uncertainty", which was co-authored by Francois Trahan and voted as the #1 Portfolio Strategist in 2013 by Institutional Investor. In the book, Francois...
SeekingAlpha  Jun 16  Comment 
By Edward Hugh: "I now suspect that the kind of moderate economic policy regime...... that by and large lets markets work, but in which the government is ready both to rein in excesses and fight slumps – is inherently unstable." Paul...
Reuters  May 30  Comment 
Don't count on the U.S. Federal Reserve to go back to a numerical bulls-eye to aim at when it finally decides to raise interest rates. A target range for the federal funds rate may well be here to stay, at least for the foreseeable future.
MarketWatch  May 2  Comment 
Fed fund futures see first rate hike coming earlier in wake of jobs report
Financial Times  Apr 4  Comment 
Most analysts agreed the Federal Reserve would maintain the status quo of gradual removal of monetary stimulus, while keeping the main Fed funds rate at close to zero for an extended period
Financial Times  Apr 2  Comment 
This pattern is the opposite of the 2004-06 tightening, when the Fed funds rate rose by 525 basis points but the long-term rate barely moved
Wall Street Journal  Mar 23  Comment 
The market struggled after Janet Yellen signaled the federal funds rate could climb as soon as April 2015.
Forbes  Mar 20  Comment 
Investors have been wanting to know when Federal Reserve will start raising its target for the federal funds rate. And in the past, the Federal Reserve has yet to give a concrete answer instead stating:  “it likely will be appropriate to...




 
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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