What is The Effective Federal Funds Rate?
“The federal funds rate is the target interest rate set by the Fed at which commercial banks borrow & lend their extra reserves to one other overnight.” – Investopedia
Why is the The Federal Funds rate so important?
The federal funds rate is one of the most important interest rates in the U.S. economy, because it affects monetary and financial conditions, which in turn have a bearing on critical aspects of the broader economy including employment, growth, and inflation.
Why is the federal funds rate so influential on other rates?
The Federal Funds Rate is influential because it determines at what interest rate banks borrow money.
How does the Federal Funds Rate affect consumers looking to take out a loan?
Since banks have a higher source cost of the money they will loan to consumers, the banks will then need to pass on that cost to consumers wanting bank loans.
