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FEDERAL FUNDS RATE

Jul 24, 2019

Definition

The federal funds rate is set by the Federal Reserve and guides the interest rates used by financial institutions. As of Today, it is 0.25%

Why It's Important

When you hear that the "Fed has decreased interest rates", this is the rate they are referring to. They are not talking about your savings account or your credit card (at least not directly). The Fed Funds Rate is the interest rate that the government charges financial institutions. Financial institutions then use that rate to establish loan rates, savings rates, and even student loan rates. So, this is a big deal! 

Pay attention to those announcements because they also affect the market. When the Fed rate goes down, stocks tend to go up. Why? Because loans become cheaper for businesses to get so they are able to invest more in their operation which in turn (should) increase profits. Savings also tend to go up. Why? Because financial institutions are able to raise their savings interest rates too.

 

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