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Fed-Funds (ie,
funds at the Fed) are borrowed overnight by banks short of cash for banks
with surplus cash. Commercial banks loan to one another to meet reserve
requirements. Reserve requirements are calculated over a two week period
against transactions
Why does the Fed increase or decrease
the federal funds rate? The Federal Reserve Act
specifies that the FOMC should seek "to promote effectively the goals of
maximum employment, stable prices, and moderate long-term interest rates."
At each meeting, the FOMC closely examines a number of indicators of
current and prospective economic developments. Then, cognizant that its
actions affect economic activity with a lag, it must decide whether to
alter the federal funds rate. A decrease in the federal funds interest
rate stimulates economic growth, but an excessively high level of economic
activity can cause inflation pressures to build to a point that ultimately
undermines the sustainability of an economic expansion. An increase in the
federal funds interest rate will curb economic growth and help contain
inflation pressures, and thus can promote the sustainability of an
economic expansion, but too large an increase could retard economic growth
too much. The Committee's actions on interest rates are undertaken to
achieve the maximum rate of economic growth consistent with price
stability and moderate long-term interest rates.
Indexes
Fed. Funds Rates
accounts and, banks who are short near the end of
their two week period may have to borrow to meet reserve requirements.
Central banks whose monetary policies are not dominated by foreign
exchange operations necessary to fix their exchange rates usually conduct
policy by intervening in domestic capital markets to occasionally change
this interbank borrowing rate. The trend in interest rates such as
Fed Funds reflects changes in expected inflation as the market increases
or decreases the inflationary premium priced into rates. Year to year
deviations in the Funds rate reflects tightening and loosening of monetary
policy.
Intended federal funds
rate
Change, 1990 to present
| Date | Change (basis points) Increase Decrease |
Level (percent) | |
|
2008 |
.... .... .... .... .... .... .... .... |
.... .... .... .... .... .... .... .... |
.... .... .... .... .... .... .... .... |
|
2007 |
.... .... .... .... .... .... .... .... |
... .... .... 25 .... .... .... .... .... .... |
4.25 .... 4.50 4.75 5.25 5.25 5.25 5.25 5.25 |
|
2006 |
.... .... .... .... 25 25 25 25 |
5.25 5.25 5.25 5.25 5.25 5.00 4.75 4.50 | |
|
2005 |
25 |
4.25 4.00 3.75 3.50 3.25 3.00 2.75 2.50 | |
|
2004 |
25 25 25 25 25 |
2.25 2.00 1.75 1.25 1.50 | |
| 2003 June 25 |
.... | 25 | 1.00 |
| 2002 November 6 |
.... | 50 | 1.25 |
| 2001 December 11 November 6 October 2 September 17 August 21 June 27 May 15 April 18 March 20 January 31 January 3 |
... ... ... ... ... ... ... ... ... ... ... |
25 50 50 50 25 25 50 50 50 50 50 |
1.75 2.00 2.50 3.00 3.50 3.75 4.00 4.50 5.00 5.50 6.00 |
| 2000 May 16 March 21 February 2 |
50 25 25 |
... ... ... |
6.50 6.00 5.75 |
| 1999 November 16 August 24 June 30 |
25 25 25 |
... ... ... |
5.50 5.25 5.00 |
| 1998 November 17 October 15 September 29 |
... ... ... |
25 25 25 |
4.75 5.00 5.25 |
| 1997 March 25 |
25 |
... |
5.50 |
| 1996 January 31 |
... |
25 |
5.25 |
| 1995 December 19 July 6 February 1 |
... ... 50 |
25 25 ... |
5.50 5.75 6.00 |
| 1994 November 15 August 16 May 17 April 18 March 22 February 4 |
75 50 50 25 25 25 |
... ... ... ... ... ... |
5.50 4.75 4.25 3.75 3.50 3.25 |
| 1992 September 4 July 2 April 9 |
... ... ... |
25 50 25 |
3.00 3.25 3.75 |
| 1991 December 20 December 6 November 6 October 31 September 13 August 6 April 30 March 8 February 1 January 9 |
... ... ... ... ... ... ... ... ... ... |
50 25 25 25 25 25 25 25 50 25 |
4.00 4.50 4.75 5.00 5.25 5.50 5.75 6.00 6.25 6.75 |
| 1990 December 18 December 7 November 13 October 29 July 13 |
... ... ... ... ... |
25 25 25 25 25 |
7.00 7.25 7.50 7.75 8.00 |