4 Answers
<p>That is the rate the banks pay to borrow funds directly from the Fed, to fill up their Reserve balance, if they fall short and can’t at that time borrow funds from another bank (overnight). I think it’s considered the baseline rate for what is called the Interbank Rate for overnight lending.</p>
5 Views
<p id="isPasted">The federal funds rate is the rate at which depository institutions lend money to each other. Each bank has different liquidity needs and shortages which they address by either lending or borrowing money from another bank. The federal funds rate is also the key rate by which the Federal Reserve sets interest rates by open market activities to push the fed funds rate up or down.</p><p>The interest rate at which banks and credit unions actively trade balances held at the Federal Reserve.</p>
4 Views
<p><br>The fed funds rate is essentially the short-term rate at which banks lend to each other on an unsecured basis for very short terms, like overnight. The rate is set by the Federal Reserve. Banks borrow from one another typically to meet the Fed's reserve requirements, which change daily based on deposit levels. The fed funds rate is usually in the news because the Fed will periodically adjust it to fine-tune the economy by stimulating or restricting credit. Changes in the fed funds rate trickle down though other interest rates, like banks' prime rates, charged to corporate borrowers, and are …</p>
3 Views
<p><br>Short-term interest rates will rise, since the federal funds rate is the barometer for all short-term interest rates. Long-term interest rates are another matter, however. If the public believes the federal funds rate was raised to reduce the rate of inflation and that the Fed will be successful, then one can expect long-term interest rates to fall. However, one theory suggests that long-term interest rates are really the result of a succession of short-term interest rates, so if short-term interest rates rise for a period of time, long-term interest rates will rise as well. And into all of this we …</p>
Please select pages to share
shared
