The Federal Reserve commented on the troubled economy but still kept the Fed Funds Rate unchanged at 5.25%. The Feds noted that Wall Street Turbulence such as Hedge Funds closing, Main Street Credit problems, and a nationwide housing slump pose increasing risk to the economy. The Feds are still concerned about inflation so they have decide to hold the Fed Funds Rate Steady rather than lower rates to help bail out the slumping housing market which is a drag on the rest of the economy
The Feds have kept this key interest steady for almost a year after raising it for two straight years to fend off inflation. In turn commercial banks prime interest rates also stayed the same at 8.25%.Keep Reading...
Fed Funds Rate is the interest rate that Banks and other depository institutions charge each other when they lend money among each other. The money is usually lent on an overnight basis. Federal law requires banks to keep a certain percentage of their customer’s money on “reserve” or right at hand, where the banks earn no interest on it. Consequently, banks try to stay as close to the reserve limit as possible without going under it, lending money back and forth to each other in order to maintain the proper reserve level.
Similar to the Federal Discount Rate, the Federal Funds Rate is used to control the supply of available money and hence, inflation and other interest rates. Raising this rate makes it more expensive to borrow and lowers the supply of available money, which increases short-term interest rates and helps keep inflation in check. Lowering the rate has the opposite effect, bringing short-term interest rates down.
Fed Funds Rate Summary:
Knowing the facts about the Fed Funds Rate and Discount Rate are important to being fiscally literate. These indexes are not available for lending on consumer loans such as ARM Loans but will influence what the Prime Rate will be.
The Feds released their statement today about their meeting over the last two days and decided to keep the Fed Funds Rate at 5.25% as everybody expected. The feds noted improvements in inflation but were skeptical that inflation may still become a problem which leaves the door open for them to raise rates later this year if need be.