Glossary

The federal funds rate is the interest rate at which banks and other depository institutions lend money to each other, usually on an overnight basis, within the United States. 🇺🇸

The rate is determined by the Federal Reserve (the US central bank) and serves as a key tool for implementing monetary policy. The federal funds rate influences other interest rates and helps control inflation, stabilise prices, and achieve full employment.

For example, if the Federal Reserve wants to stimulate economic growth, it might lower the federal funds rate, making it cheaper for banks to borrow money, which can encourage lending and investment.

Fun fact: The federal funds rate reached an all-time low of 0.07% in December 2008 during the global financial crisis. The Fed took this action to boost the economy and combat the severe economic downturn.