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.