Individual Stocks

Interest Rates

What is the “Federal Funds Interest Rate”?

The Federal Funds Interest Rate is the price the Federal Reserve charges member institutions to borrow money. Any change in this interest rate does not necessarily cause a short-term change in stock market prices, but it does affect the movement of various stock market prices. Because the Federal Reserve tries to manage inflationary or deflationary movements of prices by changing the amount of money circulating in the system (by changing the price of money or interest rates), it may have a slowing or accelerating effect on how much money is circulating in the system. For example, if we raise interest rates, the belief is that if the Fed slows down the amount of money available and circulating within the economic system, perhaps the prices of goods and services may begin to creep downward, reducing inflationary price pressures. Most of the world’s central banks and governments try to use a similar strategy to manage inflation.


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