The Federal Funds rate is the interest rate on overnight loans between banks. These loans are most often used to satisfy the reserve requirement.The Fed rate is the interest rate that banks charge to lend money to each other. The Federal Reserve chairman changes this rate to influence the direction of the U.S. economy.
Federal Reserve Banks
1. In 1913, the Federal Reserve Act established a network of banks as the Federal Reserve System and made it the central banking authority in the nation.
Reserve Requirement
2. Each bank in the Federal Reserve System must hold a certain amount of liquid assets in reserve at all times.
Fed Rate
3. The Fed rate is the interest percentage charged by banks in the Federal Reserve System when they make overnight loans to one another to meet the reserve requirement.
Board
4. The Federal Reserve Act gave the Federal Reserve Board the power to try to maintain a stable economy by changing the Fed rate from time to time.
Chairman
5. As the head of the Federal Reserve Board, the chairman wields extraordinary power by making the final decision about Fed interest rate changes.