What Are Federal Funds?

Federal funds (Fed Funds) refers to the reserves of commercial banks in the United States deposited in the Federal Reserve Bank (the central banking system), including statutory reserves and funds in excess of the reserve requirements. These funds can be lent to other member banks to meet their needs for short-term reserves. The interest rate on the borrowing is called the federal funds rate. This rate is one of the two major benchmark rates in the United States. The other benchmark rate is the discount rate.

Federal funds

The federal funds market is a loose, intangible market that connects market participants by a telephone network. The main players in the market are commercial banks and other financial institutions. Federal fund brokers serve as market leaders and provide services to market participants.

The federal funds rate varies from day to day and depends on the money market conditions. It is the most sensitive to financial markets. When there is any change in the central bank's policies, it will immediately affect the rise and fall of this interest rate. This can predict the trend of the central bank's policy and be reasonable Reflects the tightness of the money market.

The federal funds first began in the 1920s, when it was a reserve between banks

On June 19, 2019, the US Federal Reserve announced that it would maintain the target range of the federal funds rate at 2.25% to 2.5%, and said that the uncertainty facing the US economy is increasing, and appropriate measures will be taken to ensure the continued expansion of the US economy. ^[1]