What is the Federal Funds rate?
The Federal Funds rate is the overnight interest rate that commercial banks charge other banks who require additional deposits in order to meet reserve requirements.
How is the Federal Funds rate influenced?It is influenced through monetary policy, when the Federal Reserve either buys or sells government bonds from/to the public. For example, If the FED sells government bonds, bank reserves and the money supply will decrease, making it more expensive for banks to make loans (and increasing interest rates).
What is quantitative easing?Quantitative easing is the Federal Reserve’s program for buying back bonds from member banks. Specifically, is has entailed the purchasing of mortgage-back securities and U.S. Treasury Notes. The purpose of this monetary expansion policy is to provide additional liquidity to banks so that corporate balance sheets have healthier reserves. This in turn encourages banks to lower their interbank interest rates (Federal funds rate) so that they are able to lend out more of their additional reserves. In a word, QE is an attempt to stimulate the economy by increasing the money supply.
What is QE?Quantitative easing is the Federal Reserve's program for buying back bonds from its member banks. Specifically, the Fed purchases mortgage-backed securities and U.S. Treasury notes from banks. The purpose of this expansioary monetary policy is to lower interest rates and spur economic growth. By adding credit to the