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Federal funds rate

The interest rate banks pay to borrow reserve balances overnight. The FOMC sets a target range for it.

Changes in this short-term rate typically pass through to other rates, such as those on Treasury securities, corporate bonds, fixed-rate mortgages and consumer loans. Source 1

Floating-rate loans respond quickly. Longer-term rates also depend on what people expect short-term rates to do. Source 1

Related terms

Where it comes up

Sources

  1. Federal Reserve Board: Monetary policy: what are its goals? How does it work? (opens in a new tab)

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