Fed rate rate could impact the stock market. This becomes the reason why investors keep watching the fed rate. The prime rate is the rate that the banks charge for their creditworthy borrowers. This is a rate that could influence federal funds rate. Commonly, the stock market would have a strong response to the target rate’s changes. The epitome is like a small decline in the rate can trigger the market to move higher as the companies’ borrowing costs are lower. Thus, stock analysts tend to be careful and pay much attention to the FOMC members. The purpose is to get a sense where the rate would be.
At the very first place, the banks charge the interest rate to borrow or lend excess reserves overnight. So, the law requires the banks to own a minimum reserve level based on their deposits. A Federal Reserve Bank is in the reserve requirement. It means that when a bank owns excess reserve requirements, it could lend the funds overnight to other banks. The banks that borrow sometimes have realized their reserve deficit. Therefore, it is imperative for the Federal Open Market Committee (FOMC) to meet eight times at least a year to decide the Fed rate. Economic indicators would influence the rate. This covers the durable goods orders report and the core inflation rate. Because two of them could give signals about the country’s economic health.
Therefore, is there any difference between the regular interest rates and federal funds? Both indicators are important in the U.S. The major difference is that the federal funds rate sets the range for banks to lend or borrow. Because, it would influence borrowing costs and financial conditions, plus stock market.
