FEDERAL FUNDS RATE
What is the Federal Funds Rate?
The Federal Funds Rate is the target interest rate set by the Federal Open Market Committee (FOMC). It’s the rate the fed suggests commercial banks borrow and lend their excess reserves to each other overnight.
The Federal Open Market Committee meets eight times a year to set the target Federal Funds Rate as part of its monetary policy predicated on prevailing economic conditions. While the Fed sets the target interest rate, the actual rate is determined by the overnight lending market based on the supply and demand of commercial banking short-term reserves. If the market strays, the central bank can intervene and influence the rate in the open market.
WHY IS KNOWING THE FEDERAL FUNDS RATE VALUABLE?
Federal Funds Rate adjustments are based on key economic indicators that may show signs of inflation, recession, or other issues that can affect sustainable economic growth. The indicators can include measures like the core inflation rate and the durable goods orders report. Changes in the rate not only affect the cost of borrowing money, but provide insight into the financial health of the U.S.
What should you do?
If you’re looking to understand lending rates, economic headwinds, and overall domestic financial health, the Federal Funds Rate is a great place to start. Majestic’s CORE Report follows the Federal Funds Rate; along with other indicators every week to see where the market stands.