Glossarytaught in M7.02, MS1.03, M7.03
Federal Reserve
Also called the Fed, US Federal Reserve, FOMC, Federal Open Market Committee, fed funds rate, federal funds rate, fed funds.
The central bank of the United States. Its Federal Open Market Committee meets eight times a year and sets a target range, 25 basis points wide, for the federal funds rate, the rate banks charge each other for overnight loans of reserves. Its mandate from Congress is maximum employment and stable prices, which it defines as 2% inflation over time.
A target range of 4.25% to 4.50% means the Fed steers overnight rates into that band, mainly through the interest it pays on banks' reserves.
Its decisions travel. A higher US policy rate raises the return on dollar assets, which can draw foreign portfolio money out of India and weaken the rupee. It can push up Indian bond yields too, even when the RBI hasn't moved.
Watch its projections as well as its decision.
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