Federal Funds Rate

QUOTE AND NEWS
Yahoo  5 hrs ago  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...
MarketWatch  May 23  Comment 
Ian Shepherdson, chief economist at Pantheon Macroeconomics, is applying the Laffer concept to another market: the federal funds rate. He says maybe the conventional wisdom that the lower interest rates go, the stronger the economic response is...
Yahoo  Apr 14  Comment 
The Fed is likely to take a pass at its policy meeting later in April and instead will opt to raise the federal funds rate by 25 basis points in June to 0.50-0.75 percent in what will be the second in its first series of rate rises in nearly a...
newratings.com  Apr 4  Comment 
WASHINGTON (dpa-AFX) - The dollar is losing ground against all of its major rivals Monday afternoon, continuing the weakening trend from the previous trading week. The U.S. currency began to fall after Janet Yellen's speech to the Economic...
newratings.com  Mar 30  Comment 
WASHINGTON (dpa-AFX) - The dollar is turning in a mixed performance Wednesday afternoon, but is little changed overall against its major rivals. The U.S. currency weakened yesterday afternoon, following the cautious comments made by Federal...
Benzinga  Mar 29  Comment 
Federal Reserve Chairman Janet Yellen said the central bank of the world's largest economy should exercise caution in proceeding with the monetary policy. "In particular, developments abroad imply that meeting our objectives for employment and...




 
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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