Investors should keep their eyes peeled for the different projections for the Federal Funds rate.
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For a year, through June 2004, the Federal Reserve held the federal funds rate at 1%.
With the federal funds rate already at or near zero, that prospect is unlikely.
There are bonds whose yield depends on the federal funds rate staying within a specified band.
The federal funds rate is what U.S. banks charge one another on overnight loans.
The federal funds rate, when adjusted for inflation, turned negative from late 2002 into 2005.
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Finally the zero to 0.25% federal funds rate was extended until at least mid-2015.
So, the FOMC reverted to its prior practice of controlling money through its target Federal Funds rate.
The U.S. kept the prime rate at around 6% while bringing the federal funds rate to 3%.
We now expect a 25-basis-point cut in the Federal funds rate and discount rate on Dec. 11.
During the last few years, the Federal Reserve has lowered the Federal Funds Rate close to 0%.
Lowering the federal funds rate, its traditional weapon, tends to make the most impact on short-duration debt.
Pushing the Federal Funds Rate below 3% was probably the most significant cause of The Great Credit Crunch.
Another bad sign: The federal funds rate target of 4.75% remains higher than the yield on 10-year Treasurys.
The Fed has already cut the federal funds rate to 1 percent, close to its lower bound of zero.
On Tuesday the Federal Reserve decided to leave the federal funds rate alone.
Out of the 17 members, nine currently anticipate leaving the federal funds rate target unchanged until 2014 or 2015.
These reserve operations are done solely to maintain the target Federal Funds rate.
Now the central bank not only announces any changes in the federal funds rate, but also guides the markets.
According to Lehman Brothers, since 2000 the gap between the federal funds rate and LIBOR has averaged 8 basis points.
Banks, anticipating huge demands from companies seeking funds, began hoarding cash, sending the federal funds rate as high as 6%.
There is also the expectation that the FOMC will extend its zero to 0.25% federal funds rate target thought 2015.
Instead, we have to use unconventional tools, such as LSAPs and guidance about the future path of the federal funds rate.
The current discount rate, 3.5%, is significantly higher than the 3% federal funds rate, which is what banks charge each other.
If the federal funds rate were at, say, 3 percent, we would have, in my view, an open-and-shut case for reducing it.
Many economists believe if the financial market crisis worsens, the Fed will soon move to cut the federal funds rate as well.
The target for federal funds rate, which is the rate banks charge each other to borrow funds overnight, is already near zero.
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It is no secret that the federal funds rate is extremely low.
The second reason for likely interest rate increases can be attributed to the correlation between the Federal Funds Rate and bond interest rates.
With the Federal Funds rate now at 2.5%, the Fed is effectively lending money at zero interest, based on August's 2.7% rate of inflation.
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