00:00Fed Funds Rate, How the Rate Moves Through the System
00:05First, follow the mechanism from the Federal Reserve to the wider economy.
00:10Banks constantly receive and send payments, leaving some with extra reserve balances and others needing more.
00:18They can lend those balances to one another overnight, creating the Federal Funds Market.
00:23The Fed influences the price of that short-term money through administered interest rates and other operating tools.
00:32When that benchmark changes, banks and investors reassess the rates available across other short-term transactions.
00:40That influence can then reach consumer and business credit,
00:44although each lender still considers funding costs, competition, credit risk, and the term of the loan.
00:50The result is a chain of influence, not a switch that resets every interest rate by exactly the same amount.
00:59Full recap, tap the related video.
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