Federal fund Federal fund Federal fund refers to the reserves deposited by American commercial banks in the Federal Reserve Bank (that is, the central banking system), including statutory reserves and funds exceeding the reserve requirements. These funds can be lent to other member banks to meet their demand for short-term reserves, and the loan interest rate is called the federal funds rate. This interest rate is one of the two benchmark interest rates in the United States, and the other benchmark interest rate is the discount rate.
This effect is described below:
The market interest rate is high, and the federal funds interest rate is as high; The market interest rate is very low, and so is the federal funds rate. With the increase of the statutory reserve ratio, the market funds decrease, the interest rate increases, and the federal funds interest rate is also higher. The statutory reserve ratio decreases, the market funds increase, the interest rate decreases, and the federal funds interest rate is also lower.
Please adopt it and add satisfactory answers.