Glossary · Macro · Monetary policy

Policy rate (federal funds rate)

The short-term interest rate a central bank targets, in the United States the federal funds rate at which banks lend reserves to each other overnight. The central bank moves it with open market operations, and every other interest rate in the economy follows.

Also called: federal funds rate, fed funds rate, target rate

Taught in: Central Bank Tools

Related terms

Open market operations (OMO)Monetary policy transmissionDiscount rate

More from monetary policy

Central bank credibilityCentral bank toolsForward guidanceInflation biasInterest on reserves (IOR)Liquidity trapLucas critique

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