Role of the Federal Funds Rate - How the Fed targets the Federal Funds Rate

4 important questions on Role of the Federal Funds Rate - How the Fed targets the Federal Funds Rate

How does the market set the Federal Funds Rate?

The rate is determined by the supply and demand for reserves.

What does the Fed do to influence the Federal Funds Rate?

A target rate is publicly announced by the Fed.

How does the Fed steer the market towards its target rate?

Open-market operations adjust the supply of reserves to nudge rates.
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What effect do open-market operations have on the Federal Funds Rate?

They align the actual market rate with the target set by the Fed.

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