The Federal Open Market Committee is responsible for setting the Federal Funds Rate. They conduct meetings about 8 times a year and set this rate. It is a norm that the commercial banks are expected to maintain the deposits by a certain percentage as set by the Federal Reserve. The remaining deposits are allowed to be given as loans. The interest rate for this loan is decided by the Federal Funds Rate. The effective federal funds rate is the average of transactions taking place between banks. If bank is unable to borrow from another bank, then it can do from the federal reserve on a short-term basis using discount rate.
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The Federal Funds Rate Explained in One Minute: Federal Reserve Interest Rate Superpower or Threat?
August 11, 2019 at 15:40
by K. Prabhu
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