Question

Are the markets expecting an increase or decrease in the Fed Funds Rate? Why and how can one derive this view? Do not exceed 200 words.

Answer 1

Hi!!

Answer :-

1) Federal funds rate is the target interest rate set by the Federal Open Market Committee at which commercial banks borrow and lend their excess reserves to each other overnight.

2) The federal funds rate can influence short-term rates on consumer loans and credit cards as well as impact the stock market.

3) Lower rates also encourage businesses to borrow money to expand and build, which stimulates the economy.

4) A higher fed funds rate means banks are less able to borrow money to keep their reserves at the mandated level.

5) As a result, they lend less money out. The money they do lend will be at a higher rate. So that economy and market expected to decrease.

6) in short, higher the fed rate, lower the borrow and lower the market, and lower the fed rate, higher the borrow and increasing the market.

Thank you.