On Oct. 8, as part of an unprecedented global cut, the Fed dropped the overnight federal funds rate the interest rate at which banks lend to each other to 1.5 percent from 2 percent.
The Fed cut its target on federal funds, the overnight interbank loans that form the floor rate for U.S. lending, to just 0.25%, down 75 basis points from the previous 1.0% level.
The FOMC has its hands on only the shortest of short-term interest rates the overnight rate at which banks can borrow federal funds.
In mid-August the Fed supplied enough liquidity to hold the effective federal funds rate, an overnight interbank rate, below its then target of 5.25%.
Reason: The Federal Reserve's easy money means that funds for overnight lending aren't worth anything.
The central bank's monetary policy targets the federal-funds rate, which banks charge each other on overnight loans.
The target for the federal-funds rate, at which banks lend to each other overnight, has been between zero and 0.25% since December 2008.
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The Fed said it was cutting the federal funds rate, the interest that banks charge each other on overnight loans, to 3.5 percent, down by three-fourths of a percentage point from 4.25 percent.
Last month the Fed cut the federal funds rate (applied to money that banks lend to each other overnight to meet reserve requirements) by 1.25 percentage points, to 3%, in just eight days--the biggest one-month reduction in 25 years.
The federal funds rate is what U.S. banks charge one another on overnight loans.
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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Trading in federal funds futures indicated an 84.0% chance that the central bank would cut its overnight rate target to 1.25% on Oct. 29, following its half-point reduction on Wednesday.
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