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| Fed funds rate |
| By Bankrate.com |
|
 |
| Prime rate, fed funds, COFI |
|
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This week |
Month ago |
Year ago |
|
Fed Funds Rate
|
1.50 |
2.00 |
4.75 |
|
What
it means: The interest rate at which banks and other depository
institutions lend money to each other, usually on an overnight basis.
The law requires banks to keep a certain percentage of their customer's
money on reserve, where the banks earn no interest on it. Consequently,
banks try to stay as close to the reserve limit as possible without
going under it, lending money back and forth to maintain the proper
level.
How
it's used: Like the federal discount rate, the federal funds
rate is used to control the supply of available funds and hence, inflation
and other interest rates. Raising the rate makes it more expensive
to borrow. That lowers the supply of available money, which increases
the short-term interest rates and helps keep inflation in check. Lowering
the rate has the opposite effect, bringing short-term interest rates
down.
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