Federal funds market

(redirected from Federal Funds Markets)

Federal funds market

The market in which banks can borrow or lend reserves, allowing banks temporarily short of their required reserves to borrow reserves from banks that have excess reserves.

Federal Funds Market

The market for loans that the Federal Reserve makes to member banks. The fed funds market is an indicator of the direction in which the Federal Reserve is trying to push the broader economy. In general, if the Federal Reserve has a low interest rate range in the fed funds market, this indicates that it is trying to promote growth by making liquidity easily available; a high interest rate shows that the Fed is concerned about inflationary pressures on the economy and is trying to reduce the amount of money in the economy. Along with the sale of Treasury securities and determining the discount rate, influencing the federal funds market is one of the primary ways the Federal Reserve sets the monetary policy of the United States. See also: LIBOR.
References in periodicals archive ?
Yet another explanation for this finding is that open market operations account for a very small proportion of the variation in the equilibrium quantities in the reserves and federal funds markets.
Consistent with the absence of a liquidity effect, open market operations appear to be a relatively unimportant source of liquidity to the federal funds market.
In so doing, it provides some evidence on the relative importance of Fed operations in supplying liquidity to the federal funds market.
Hence, some additional evidence on the potential for a liquidity effect can be obtained by investigating the relative importance of open market operations in the federal funds market.
For the federal funds market, this means banks, Fannie Mae, Freddie Mac, and Federal Home Loan Banks.
Indeed, based on Furfine's and Demiralp, Preslopsky, and Whitesell's estimates, the brokers that report daily to the Fed account for roughly about a third of the federal funds market.
Despite the possibility that the brokered transactions appear to represent a relatively small share of the federal funds market, these are the correct data for analyzing the relative importance of open market operations because these data are used to calculate the effective federal funds rate--the rate used in virtually all analyses of monetary policy.
Nevertheless, because the initial effect of open market operations is on the reserves of large banks, some of whom may act as brokers in the federal funds market, simultaneously buying and selling funds (e.
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