Federal Deposit Insurance Corporation
April 13, 2020Federal Open Market Committee (FOMC)
April 13, 2020The federal funds rate is the interest rate that banks lend excess reserves to each other overnight, and the weighted average rate for all of these types of negotiations is called the effective federal funds rate (EFFR).
Reserves are excess balances held by the Fed to maintain reserve requirements.
The effective federal funds rate is mainly driven by the market but is affected by the Fed’s policies to achieve the federal funds rate goal. By adjusting the fed funds rate, it affects monetary and financial conditions, which in turn affects key aspects of the entire economy, including employment, growth, and inflation.
The Federal Open Market Committee (FOMC) meets eight times a year to set the federal funds rate and use open market operations to influence the money supply to achieve the target rate.
