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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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.
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%.
Instead, we have to use unconventional tools, such as LSAPs and guidance about the future path of the federal funds rate.
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.
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.
Wesbury would like to see the federal funds rate at a "neutral" 6.5% or so. (Neutral is the GDP growth rate plus core inflation.) Me?
Although the federal funds rate is now close to zero, the Federal Reserve retains a number of policy tools that can be deployed against the crisis.
The Fed even narrowed the penalty banks paid for using discount window money, moving the discount rate closer to the Federal funds rate during the crisis.
When the time comes to tighten policy, we can raise the rate paid on reserve balances as we increase our target for the federal funds rate.
Ben Bernanke and Co. are keeping the federal funds rate between zero and 0.25%, and still expect to keep it that way for an extended period.
Judging by the price of Fed fund futures, investors expect the federal funds rate to be as low as 2.25% by the end of the year.
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