Federal Funds Rate
🏦 Banking
Quick Definition
The Federal Funds Rate is the interest rate at which depository institutions lend reserve balances to other depository institutions overnight.
Examples
- 1A bank needing additional reserves to meet its reserve requirements borrows from another bank at the federal funds rate.
- 2When the Federal Reserve raises the federal funds rate, it becomes more expensive for banks to borrow from each other, which can lead to higher interest rates on loans and credit cards for consumers.
- 3A decrease in the federal funds rate can stimulate economic growth by making borrowing cheaper, encouraging businesses to invest and hire more employees.
- 4The federal funds rate is a benchmark for many adjustable-rate mortgages, meaning changes in the rate can affect monthly mortgage payments.
Tags
federal-reserveinterest-ratesmonetary-policybankingeconomyfinancial-markets
Related Terms
Other terms you might find helpful
Inflation
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power.
Monetary Policy
Monetary policy refers to the actions undertaken by a central bank, such as the Federal Reserve, to influence the availability and cost of money and credit to help promote national economic goals.
Open Market Operations
Open market operations (OMO) refer to the buying and selling of government securities in the open market by a central bank to control the money supply and influence interest rates.
Quick Info
Category:Banking
Difficulty:intermediate
Last Updated:6/19/2025