
Are we in a recession? It sure feels like it to many Americans
High inflation has a financial toll similar to job loss.
The effective federal funds rate impacts the economy. Learn more at Bankrate.com.
The effective federal funds rate is the interest rate banks charge each other for overnight loans to meet their reserve requirements. Also known as the federal funds rate, the effective federal funds rate is set by the Federal Open Market Committee, or FOMC. The effective federal funds rate is the most influential interest rate in the nation’s economy. It affects employment, growth and inflation.
Banks and other depository institutions in the United States maintain accounts at the Federal Reserve. These accounts are largely how banks and other lending institutions make payments for themselves or on behalf of their customers. Only the most creditworthy institutions can borrow overnight funds at the effective federal funds rate.
The Federal Reserve sets reserve requirements for its accounts. Banks often hold their reserve funds at the Federal Reserve. If an institution has a larger end-of-day balance than is required, it will lend funds overnight to other institutions that need it, and charge the effective federal funds rate.
The effective federal funds rate peaked at 20 percent in the 1980s and plunged to zero percent in 2008.
Changes in the effective federal funds rate have a broad impact on the U.S. economy. When the real estate market tanked in 2007 and the economy went into a recession, the Fed lowered the cost of borrowing for banks. Banks, in turn, lowered their consumer interest rates for mortgages, auto loans, credit cards and other credit lines, to help stimulate the economy.
Now that the economy has markedly improved, the Fed is gradually raising the federal funds rate again. The current effective federal funds rate is the basis for The Wall Street Journal prime rate, which is a key rate for borrowers. When the Fed raises rates, the Journal’s prime rate also rises, influencing the cost of buying or refinancing a home, taking out a personal loan or other credit.
Shop for a mortgage at Bankrate.com while interest rates are still low.
High inflation has a financial toll similar to job loss.
It isn’t always about two consecutive quarters of negative GDP growth.
The Fed’s move is the biggest increase since 1994 and undoubtedly raises the risks of a recession.
The key benchmark has been as high as 20 percent — and as low as 0 percent.
As the Fed raises interest rates, here are the biggest winners and losers from its latest decision.
This Fed communication tool is important, but be cautious when interpreting it.
This cornerstone of Fed policy has major implications for the economy and your pocketbook.
The Fed looks likely to consider raising interest rates by three quarters of a percentage point.
Consumers are witnessing the most hawkish Federal Reserve in decades. Here’s how to prepare.