Federal Funds Rates

This chapter reviews the impact of federal funds rate on the market conditions in an economy. The federal funds rate, or the interbank loan rate, moves the rest of the yield curve and changes the direction of the economy. As the federal funds rate results from open market operations, this interest rate points to the future of economic growth. Federal funds rate changes constantly throughout the day in a reflection of market conditions. It is shown through the help of examples that by using federal funds rate as a guiding force, stock market can be pulled out of crisis. The rate is one of the primary benchmark for stock traders and treasurers to take any money market related decision. It is suggested to buy stocks after a crash and when the Federal Reserve has lowered the funds rate one-half of one percent. It is found that the federal funds rate reflects the Federal Reserve's desire to expand or contract the economy.