$SPY Why We Will Continue Down / Bear Market Not FinishedWhat is Federal Funds Rate?
The federal funds rate is the interest rate at which banks and other depository institutions lend money to each other overnight on an uncollateralized basis. It is the interest rate at which banks can borrow or lend money in the federal funds market. The Federal Reserve uses the federal funds rate as a tool to implement monetary policy and control inflation. By raising or lowering the federal funds rate, the Federal Reserve can influence the overall level of interest rates in the economy, thereby impacting economic growth and inflation.
How Does Federal Funds Rate Affect The Economy?
The Federal Reserve's setting of the federal funds rate can have a significant impact on the overall economy. When the Federal Reserve raises the federal funds rate, it makes borrowing money more expensive for banks, which in turn makes borrowing more expensive for individuals and businesses. This can slow down economic growth by making it more difficult for companies to expand and for consumers to purchase big-ticket items like homes and cars.
On the other hand, when the Federal Reserve lowers the federal funds rate, it makes borrowing cheaper, which can stimulate economic growth by making it easier for businesses to expand and for consumers to purchase big-ticket items. Lowering the federal funds rate can also help to combat inflation by making it less expensive for businesses to borrow money, which can help to keep prices stable.
The Federal Reserve's setting of the federal funds rate can also affect the stock market, currency exchange rate, and bond market.
In summary, the Federal Reserve's setting of the federal funds rate can have a significant impact on the economy by affecting interest rates, inflation, and economic growth.
What is the Projection of Federal Funds Rate In 2023?
Due to Ukraine and COVID, this has led to a historic rise in interest rates. This means that borrowing costs are increased, saving becomes more attractive/less spending, and stock prices may decrease/bonds favored.
Markets expect the U.S. Federal Reserve to raise rates again on February 1, 2023, likely by 0.25 percentage points to 4.5%-4.75%. However, there’s a reasonable chance the Fed opts for a larger 0.5 percentage point hike.
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