Principles of Macroeconomics / Unit 12 MAC 1119 short lesson, about 20 seconds
The Federal Funds Rate
Captions available
The idea
Banks lend reserves to one another overnight, and the rate on those loans is the federal funds rate. It is set by supply and demand for reserves, and other rates follow it.
In practice
The central bank announces a target, then acts until the market rate reaches it.
Where people slip
A one-point move in an overnight rate moves a mortgage rate by less.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
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