The interest rate that the federal reserve charges other banks on loans is called the federal funds rate.
One of the most important interest rates in the US economy is the federal funds rate. This is because it has an impact on monetary and financial conditions, which in turn affect critical aspects of the broader economy such as employment, growth, and inflation.
The federal funds rate is the interest rate that banks charge each other overnight to borrow or lend excess reserves.
Banks are required by law to maintain a minimum reserve level in proportion to their deposits. A Federal Reserve Bank holds this reserve requirement. When a bank has excess reserve requirements, it may lend these funds to other banks that have a reserve deficit overnight.
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