Why Should the Average Citizen Care About the Federal Funds Rate?

The federal fund rate affects every part of the economy. The federal funds rate is tied to the interest rate, or the cost of borrowing money. When interest rates are low, it is less expensive to borrow money, so business expansions, home buying and other activities that involve borrowing money are more attractive. The downside of a low interest rate is that it is low across the board, if interest rates are low to borrow money, they will be low as a return in a savings account or certificate of deposit.

There is no way for the individual consumer to affect the federal funds rate, but by watching it, you can get a feel for the direction that the economy is traveling in. Banks often borrow money so that they have enough cash reserves for large projects, and an increase in overnight borrowing can point to a thriving economy. Likewise, flat levels of borrowing can mean that banks are only borrowing to replenish their demand reserves, not to fund new loans or investments.

Page 2 of 2 :: First | Last :: Prev | 1 2 | Next