Essay on America 's Central Bank : The Federal Reserve
The federal funds rate is the interest rate that one bank charges another bank to keep funds at the Federal Reserve overnight. The Federal Reserve can increase this rate by selling government securities in the open market, which reduces the amount of excess reserves and cash in the financial system and forces the banks to charge each other a higher rate for lending. They do this in an attempt to slow down the economy and control inflation. The fact that raising the interest rate is now being considered means that key policymakers are confident with the growth of the US economy and expect it to keep improving.
Federal Reserve officials are set to meet in September for a policy meeting, which is one possible date for the increase to be announced. There are many different opinions as to when and why the federal funds rate should be raised. Some believe it should have been raised already, others feel policy makers should wait until December, or even early 2016, to allow inflation to rise. There are valid arguments for both implementing the rate hike now and holding off until December.