Money in their reserve exceeding the required level is available for lending to other banks. This might influence a shortfall. Finally balances in the bank’s account meet reserve maintenance periods. This reserve maintenance period functions as determining whether it meets the reserve requirement. In order to anticipate balances shortfall, a bank must have end of the day balances greater than the requirements. This is because the lending bank interest rate could charge using the federal funds rate or the fed funds rate.
It means that the Federal Open Market Committee (FOMC) decides rate adjustment. The rate adjustment refers to the key economic indicators. Sometimes it could show signs of inflation and recession. Other issues affecting sustainable economic growth could also become the indicators. Measurements like core inflation rate as well as the durable goods orders report are the key indicators as well. This is to note that the federal funds rate target comes in variation over the years. This is because they must adapt to the economic conditions. In the early 1980s, the rate was as high as 20% due to inflation.
The Great Recession of 2007 to 2009 impacted the slash of a record low target around 0% to 0.25%. All of these are to help economic growth. The Federal Open Market Committee (FOMC), actually cannot force the bank to charge the exact federal funds rate. On the other hand, the FOMC could set a target rate for the guidepost. The actual interest rate of a lending bank depends on the negotiations between two involving banks.
