The federal funds rate is the interest rate at which depository institutions (such as banks and credit unions) lend and borrow funds held at the Federal Reserve to each other overnight. This rate is set by the Federal Open Market Committee (FOMC), which is the monetary policymaking body of the Federal Reserve.
The federal funds rate is a key tool used by the Federal Reserve to influence the economy. When the FOMC lowers the federal funds rate, it makes it cheaper for banks to borrow money, which in turn can lead to lower interest rates for consumers and businesses. This can stimulate economic activity by making it easier for people to borrow money to spend and invest.
Conversely, when the FOMC raises the federal funds rate, it makes it more expensive for banks to borrow money, which can lead to higher interest rates for consumers and businesses. This can help to slow down inflation and cool off an overheating economy.
Overall, the federal funds rate plays an important role in shaping the monetary policy of the United States, and it can have a significant impact on the overall health of the economy.
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