6th Nov 2009 by Joseph Pousada
The federal reserve bank of the United States has different monetary tools at its disposal to carry out its mission in managing the economy and maintaining price stability. One of the tools at its disposal is the overnight lending rate for banks. Banks will lend to each other and when needed can go to the federal reserve “window” to borrow funds overnight to meet their reserve requirements.
Currently as of the Federal Reserve’s November 4, 2009 the Federal Reserve is maintaining a rate of between 0 and .25 percent. These decisions have a real impact on the returns you have if you are invested in Money Market Mutual Funds. It is important to note that although this rate gets a lot of media attention, it is one of the less powerful tools at the disposal of the Federal Reserve. The reason it gets so much media attention is that it signals the direction of monetary policy.
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