The federal funds rate is the rate banks charge each other to borrow or lend excess reserves overnight. The rate reached a staggering high of 20% in 1980 to combat doube digit inflation and a low of 0% in 2008 and again in March 2020 as a consequence of the coronavirus pandemic. Similar to the federal discount rate, the federal funds rate is used to control the supply of available funds therefore impacting inflation and consequently other interest rates. Increasing this rate makes it more expensive to borrow. That in turn lowers the supply of available money, which leads to short-term interest rates rising and helps keep inflation in check. On the flip side, reducing this rate has the inverse effect. It brings short-term interest rates down. The rate is set eight times a year by the Federal Open Market Committee, FOMC, based on prevailing economic conditions. I’m Stewart Brown, a licensed Mortgage Loan Originator in Palm Springs, California here to simply topics in Real Estate and Mortgage Lending. Please, like, share, follow and subscribe!
