Federal funds rate
Also called: fed funds rate, the Fed's rate
The federal funds rate is the interest rate at which US banks lend reserves to each other overnight. The Federal Reserve sets a target range for it, and it drives borrowing costs across the economy.
The Fed moves it mainly by setting the interest it pays on banks' reserve balances. Mortgage, car loan and savings rates follow it.
Related terms
- Monetary policy: Monetary policy is how a central bank manages interest rates and the money supply to keep inflation low and employment high.
- Interest rate: An interest rate is the price of borrowing money, stated as a percentage of the loan per year.
- Quantitative easing: Quantitative easing is when a central bank creates money to buy large amounts of bonds, pushing long-term interest rates down to support the economy when short-term rates are already near zero.
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