Federal Funds Rate

The federal funds rate is the interest rate at which depository institutions lend reserve balances to each other overnight. It is the interest rate that banks charge each other for overnight loans. The federal funds rate is set by the Federal Open Market Committee (FOMC), which is the monetary policy-setting arm of the Federal Reserve. The FOMC meets eight times per year to set the federal funds rate. The federal funds rate is a key monetary policy tool that the Fed uses to influence the economy. By raising or lowering the federal funds rate, the Fed can affect the cost of borrowing for businesses and consumers. The federal funds rate also affects the exchange rate between the U.S. dollar and other currencies.

The federal funds rate is an important indicator of the health of the economy. A high federal funds rate indicates that the Fed is tightening monetary policy and is trying to slow down economic growth. A low federal funds rate indicates that the Fed is easing monetary policy and is trying to stimulate economic growth.

The federal funds rate is not the same as the prime rate. The prime rate is the interest rate that banks charge their most creditworthy customers. The prime rate is typically higher than the federal funds rate.

The federal funds rate is a complex topic. It is important to understand the federal funds rate and how it affects the economy.