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.
Remember this
Understanding the federal funds rate helps grasp how monetary policy influences economic conditions and interest rates.
Text adapted from Wikipedia, licensed under CC BY-SA 4.0.
Related concepts
Discount rate
Discount rate is the interest rate the Fed charges banks for emergency borrowing
Economy of the United States
Why do banks pay interest on loans?
Yield curve
Yield curves show interest rates across different maturities
Inflation
How does pumping more money into the economy affect prices and savings?
Monetary policy
Why does the European Central Bank (ECB) care about interest rates?
Interest rate
Raising interest rates makes borrowing more expensive
Educational content, not financial advice.
Swipe through more Finance concepts
Open Pocket Polymath