The federal funds rate is commonly described as the target interest rate that has been fixed by the Federal Open Market Committee (FOMC). When the federal reserve announces that it is increasing the federal funds rate, it is actually going to sell bonds on the open market until the federal funds rate rises the new target.
- The target interest rate is often the rate at which commercial banks do borrow and lend their excess reserves to one other.
The FOMC often meets eight times a year so as to set the standard federal funds rate.
The Federal government announces a new federal funds rate. It takes place through buying or selling bonds to influence interest rates. fed do sells bonds, and as a result the bond prices fall and interest rates rise.
Full question below
When the federal reserve announces that it is increasing the federal funds rate, it is actually going to ___________.
A. Require that banks pay higher interest rates to each other
B. Change the law on the federal funds rate
C. Buy bonds on the open market until the federal funds rate rises to the new target
D. Sell bonds on the open market until the federal funds rate rises the new target
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