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Federal Funds Rate

Definition: The Federal Funds Rate (FFR) is the interbank interest rate in the Federal Reserve System.

Description: The FFR is decided on by the Federal Open Market Committee (FOMC). Although the yield of financial instruments is determined by market forces, interest rates can provide insight into the direction of the markets. The correlation between the FFR and bond yields is very high as rate hikes tend to lead to an outflow of capital from the stock market into the bond market.

Influence: High interest rates lead to a decrease in lending and trigger an increase in consumer savings, causing a slowdown in economic growth. A rise in the FFR usually leads to an increase in capital flowing into the US and provides a boost for the dollar in the medium term. However, if the increase in rates is not accompanied by rapid economic growth, this may lead to economic stagnation and have a negative impact on the dollar in the long run.

Market Impact: High

Released: Eight times per year, about once every seven weeks, usually on Tuesdays at 19:15 GMT

Source: The Federal Reserve


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