![]() ![]() If a bank has excess reserves, it will loan them out. If an institution falls short of the requirement, it may turn to other banks for additional funding. Under Federal Reserve quota rules, banks are required to keep a certain percentage of overall deposits in reserve, to ensure that account-holders can access their money at any time, preventing any "bank runs" or financial panic. The federal funds rate is the interest rate at which banks can borrow and lend money to one another. Although it's an interbank rate, which doesn't affect consumers directly, it becomes the basis for other interest rates, like the prime rate - which does. When people refer to the Fed raising or lowering interest rates, they're talking about the federal funds rate. The most important one: the federal funds rate. Its main method for doing this involves interest rates. One of the Federal Reserve's mandates is to manage the US money supply (the amount of cash and readily available funds circulating throughout the nation). ![]() How does the Federal Reserve influence interest rates? When the alert flashes on your phone or you hear a newscaster say, "the Fed cut interest rates today," it's a move by the FOMC they're referring to. The group meets at least eight times per year and is responsible for reviewing the country's economic conditions, conducting risk assessments on economic growth, and managing the federal funds rate. ![]()
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