Chart Showing FOMC Fed Fund Rates over the last 50 years

FOMC Fed Funds Rate

Quarterly Federal Reserve Interest Rates Since 1964

Click here for larger image

About Fed Funds Rates and the FOMC (Source St. Louis Federal Reserve)

The federal funds rate is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve
Banks)with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with excess cash, which is often referred to as liquidity, will lend to another bank that needs to quickly raise liquidity. (1) The rate that the borrowing institution pays to the lending institution is determined between the two banks; the weighted average rate for all of these types of negotiations is called the effective federal funds rate.(2) The effective federal funds rate is essentially determined by the market but is influenced by the Federal Reserve through open market operations to reach the federal funds rate target.(2)

The Federal Open Market Committee (FOMC) meets eight times a year to determine the federal funds target rate. As previously stated, this rate influences the effective federal funds rate through open market operations or by buying and selling of government bonds (government debt).(2) More specifically, the Federal Reserve decreases liquidity by selling government bonds, thereby raising the federal funds rate because banks have less liquidity to trade with other banks. Similarly, the Federal Reserve can increase liquidity by buying government bonds, decreasing the federal funds rate because banks have excess liquidity for trade. Whether the Federal Reserve wants to buy or sell bonds depends on the state of the economy.

If the FOMC believes the economy is growing too fast and inflation pressures are inconsistent with the dual mandate of the Federal Reserve, the Committee may set a higher federal funds rate target to temper economic activity. In the opposing scenario, the FOMC may set a lower federal funds rate target to spur greater economic activity.
Therefore, the FOMC must observe the current state of the economy to determine the best course of monetary policy that will maximize economic growth while adhering to the dual mandate set forth by Congress. In making its monetary policy decisions, the FOMC considers a wealth of economic data, such as: trends in prices and wages, employment, consumer spending and income, business investments, and foreign exchange markets. The federal funds rate is the central interest rate in the U.S. financial market. It influences other interest rates such as the prime rate, which is the rate banks charge their customers with higher credit ratings. Additionally, the federal funds rate indirectly influences longer- term interest rates such as mortgages, loans, and savings, all of which are very important to consumer wealth and confidence.(2)

There is a substantial risk of loss in trading futures, options and FX. Please read our full terms and disclaimers for more details of risk associated with Commodities interests.

Disclaimer: Trading in commodity interests is a challenging opportunity which involves considerable risk. Commodity Interests include; Futures, options, cash currencies and other leveraged transaction products. The valuation of futures, options, cash currencies and other leveraged transaction products may fluctuate and as a result clients may lose more than the amount originally invested and may also have to pay more later. Therefore, before deciding to participate you should carefully consider your investment objectives, level of experience and risk appetite. Most importantly, do not invest money you cannot afford to lose. Consulting with your investment counselor, attorney or accountant as to the appropriateness of an investment in margin trading and leverage transaction products is recommended. Back Bay Futures is a registered branch office of Back Bay FX Services, LLC - NFA member (0388617).

 Source from Original Article

Intermediate 0 Users Collected

Post Topics

Post Details

Download Our Free eBook

25 Stock Market Indicators To Know

And subscribe to our MarketHeist Guides newsletter!

Comments

Comments are closed.

Login to Comment

Free Brokers, Software, & Tools to Start.

Start with Brokers that have free accounts and professional grade software. Software that's the same whether you're practicing with fake money or trading real money.

Submit a Service

Profile Photo

TD Ameritrade Online Broker

With free thinkorswim, Trade Architect, & mobile software. Practice with virtual money. Invest and trade in stocks, ETFs, mutual funds, bonds, options, futures, and forex. No minimum and no maintenance fees. $0 to start.

☆ Collect Launch

Profile Photo

tradeMONSTER Online Broker

Free browser & mobile software. Easy to use technology including strategySeek and paperTRADE. Invest and trade in stocks, ETFs, mutual funds, bonds, and options. No minimum and no maintenance fees. $0 to start.

☆ Collect Launch

Profile Photo

optionsXpress Online Broker

optionsXpress offers an innovative suite of online brokerage services for investor education, strategy evaluation and trade execution. No minimum requirements.

☆ Collect Launch

Learn The Business. Take A Course.

What is the market and how it works
Finding Opportunities (with Technical Analysis & Fundamental Analysis)
Planning & Safety (with strategies to make smart decisions.)
Plan Execution: Buying & Selling

Submit a Service

Learn Stocks

Profile Photo

Investools Investing Foundations Program

Get trained in the foundations of the stock market and stock trading with two courses, a wealth of easy-to-use tools, and top-tier coaching support, in the program that helps you start managing your own portfolio. In the Investing Foundation Program, you’ll enjoy live and online workshops that can help you quickly overcome fears and learn […]

☆ Collect Launch

Learn Options

Profile Photo

OptionsAnimal Apprentice Options Education Program

Description Build your knowledge from the ground up. Understand key concepts and learn the basic spread trades that will give you a foundation to trade successfully. Learn how to properly structure a trade using the Protective Put, Covered Call, Collar Trade as well as applying the Straddle/Strangle. Trade Adjustment Spread Trades OptionsAnimal Trader Professional Program […]

☆ Collect Launch

Learn Futures

Profile Photo

OpenTrader Professional Training Program

The industry’s only training program built by professional full-time traders. You used to have to get hired by a professional trading firm to get world-class training. Not anymore. If you’ve been a losing trader, getting beaten down by the market again and again, low on confidence and full of doubt, things are about to change […]

☆ Collect Launch

On-The-Job Training. Earn While Learning.

Follow Live Trades, Step By Step
Detailed Trade and Market Analysis
Explanations of Strategies and Tactics
Questions Answered in Webcasts & Chatrooms
Learn by Copying The Pros At Every Step

Submit a Service

Learn Stocks

Profile Photo

Mish’s Market Minute Premium Stock Picks Video Subscription

Live-in-the-market instruction showing you how to trade in the afternoon the choice stock and ETF picks vetted by MarketGauge’s tools earlier in the day. Video up to 15 minutes: 4 times a week (M/T/W/Th) by 1:30PM ET $124.97/month Includes ETF Monitor & Nuggets List Private real-time Twitter Alerts 2 week FREE trial Learn as Mish: […]

☆ Collect Launch

Learn Options

Profile Photo

stockguy22 Live Trading & Education for Part Time Traders

What You’ll Get Learn stocks and options trading at your own pace from a group of full time traders dedicated to teaching through live trading, education, and mentoring.  See how trading is done methodologically as an occupation on a daily basis, from beginning to end.  Start with the daily in-depth analysis of stocks, the overall […]

☆ Collect Launch

Learn Futures

Profile Photo

Emini Wizard Trading System & Live Trading Chat Room

Thanks for considering The Emini Wizard System: This system is available for purchase for people who want to make a one time investment for the entire program. You get: Access to the Member’s website Spreadsheets Common plays Special plays Trade logic explained Chart patterns Chart settings we prefer Separate active chat area (30 days free […]

☆ Collect Launch

Some Partners We've Worked With

  • Download Our Free eBook

    25 Stock Market Indicators To Know

    And subscribe to our MarketHeist Guides newsletter!