U.S. Federal Funds Rate: How The Central Bank Is Influencing The U.S.

The interest rate the U.S. banking system charges lenders is called the fed funds rate. The federal funds rate determines how much banks charge individuals and companies for mortgages, financing, credit cards and other types of debt.

The Fed sets the rate of inflation by deciding a decision on how many times it intends to purchase or sell government bonds each month. The Fed may also increase or reduce the federal funds rate by purchasing or selling U.S. Treasury obligations and agencies mortgage-backed securities (MBS).

How Does the Fed's Funds Rate Affect You?

The greater or lower the rate of federal funding is, the more desirable one currency becomes compared to another. The dollar's value will vary appropriately based on central bank choices regarding how many dollars to issue and how quickly to purchase or sell that money from investors.

If you wish to make an investment in foreign currency pairs, you'll need comprehend how this impacts your returns over time - and the role central banks play in deciding those returns.