Federal Funds Rate
The Federal Funds Rate is the interest rate at which banks lend funds to each other overnight in the United States. It is one of the most important benchmark interest rates in the U.S. financial system. The Federal Open Market Committee (FOMC) of the Federal Reserve sets the target for the federal funds rate as part of its monetary policy to achieve economic goals such as price stability and maximum sustainable employment.
Changes in the federal funds rate have a cascading effect on various interest rates throughout the economy. For example, when the Fed raises the federal funds rate, it tends to lead to higher interest rates for consumers and businesses. Conversely, lowering the rate can stimulate economic activity by making borrowing more affordable.
Monitoring the federal funds rate is crucial for investors, businesses, and policymakers, as it provides insights into the stance of monetary policy and potential impacts on economic conditions.