HOW DOES THE FEDERAL FUNDS RATE AFFECT THE ECONOMY

The Federal Funds Rate is one of the most important interest rates in the US economy. Because of its effect on INFLATION, ECONOMIC GROWTH, and EMPLOYMENT, the fed funds rate has a significant effect on the broader economy.
The fed funds rate is one of the tools that the Federal Reserve uses to determine the nation's monetary policy.
The federal funds rate is the interest rate banks charge each other for overnight loans to meet their reserve requirement. This rate also determines the bank's prime lending rate, which in turn affects loans from commercial or business loans to private home mortgages, to short term loans, auto loans, and credit cards.
The Federal Open Market Committee, or the FOMC, is a branch of the Fed that meets 8 times a year to determine the fed funds rate. Closely watched by investors because of how it affects the stock market, the FOMC's decision on the fed funds rate also affects the currency markets and the exchange rates relative to the US Dollar.

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