Federal Funds Rate
The Federal Funds Rate (FFR) is the interest rate at which private banks lend their excess reserves to other financial institutions on an overnight basis. It is one of the primary tools used by the U.S. Federal Reserve to influence and manage money supply in order to achieve its macroeconomic goals, such as stabilizing prices and promoting full employment.
The actual FFR is determined through a daily auction process known as “open market operations” that takes place between 8:30 am ET and 9:00 am ET each business day, when large institutional lenders submit bids for how much they would be willing to pay or receive from other participating institutions over a given period of time (often just 24 hours). The resulting weighted average rate serves as the benchmark reference point for setting short-term lending rates across all commercial banks in America – especially those with direct access to Fed funds markets.
In addition, since changes in this key policymaking lever can affect economic growth prospects around the world, investors often watch for signals about incoming shifts in monetary policy by keeping tabs on movements in this particular measure. For instance, if there’s speculation that an increase may soon occur then it could have implications not only for domestic businesses seeking capital but also global currencies trading against one another depending upon where respective central bank policies stand relative to each other at any given moment (i.e., strength/weakness compared side-by-side).
