What is the Federal Funds Rate?

Executive Summary

• The Federal Funds Rates is one of the primary levers the Federal Reserve uses to manipulate interest rates.

Introduction

This is explained by the following quotation

“Whatever the intermediate targets of monetary policy may be, the Fed’s primary instrument for implementing policy is the federal funds rate. The fed funds rate is influenced by open market operations. It is maintained or adjusted in order to guide the intermediate target variable. If the Fed is using a quantity rule (i.e., trying to determine the quantity of money), the intermediate target is a monetary aggregate such as M1 or M2. For instance, if M2 grows faster than its target rate the Fed may raise the fed funds rate in an effort to slow the growth rate of M2. If M2 grows too slowly the Fed may lower the fed funds rate. If the Fed chooses to use the value of money as its intermediate target then the fed funds target will be set based on a price level indicator such as the price of gold or the Spot Commodities Index.”

Source: Soft Currency Economics

http://moslereconomics.com/wp-content/uploads/2018/04/Soft-Curency-Economics-paper.pdf