Federal funds rate: interest rate for overnight loans between banks
Federal funds rate
Federal funds rate: interest rate for overnight loans between banks
The federal funds target range is set by the Federal Open Market Committee (FOMC), which meets eight times a year. The FOMC can also hold additional meetings to adjust the target rate. The FOMC's decisions impact the federal funds rate and monetary policy.
Example
A bank with excess reserves lends $1 million to another bank overnight at the federal funds rate.
Understanding the federal funds rate helps grasp how monetary policy influences economic conditions and interest rates.
Related concepts
Discount rate
Discount rate is the interest rate the Fed charges banks for emergency borrowing
Yield curve
Yield curves show interest rates across different maturities
Interest rate
Raising interest rates makes borrowing more expensive
Dual mandate (disambiguation)
Federal Reserve's dual mandate focuses on maximum employment and price stability
Inflation targeting
Central banks aim for a specific inflation rate, usually 2%
Bond
Bonds pay interest to investors
Educational content, not financial advice.
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