Market Minute: The Federal Funds Rate

Feb 10, 2023 | Market Minute

What is the Federal Funds Rate? How does it affect consumers and businesses? Watch this short video to learn about how the Federal Reserve uses the Federal Funds Rate to influence inflation and the economy.

Transcript:

Hello, my name is Daniel Greulich and I’m the Chief Investment Officer at GreenUp Wealth Management. Last week, the Federal Reserve announced yet another increase in the Federal Funds Rate. 

The Federal Funds Rate is the interest rate that banks charge each other for overnight loans, and when it’s increased, it makes borrowing more expensive for banks, which in turn makes borrowing more expensive for you and I. 

In the past this has led to a decrease in spending, which helps to control inflation. On the other hand, when the Federal Reserve lowers the Federal Funds Rate, it makes borrowing cheaper for banks and consumers, which stimulates spending and helps to boost the economy. It affects everything from mortgage rates and credit cards to the cost of borrowing money for businesses. 

The following chart shows the combined opinion of each Federal Reserve Governor and where they believe the Federal Funds rate should be today and into the future. The illustration details a clear transition from the restrictive, rising interest rate conditions we saw in 2022, to a more stable, borderline accommodative interest rate environment for 2024 and beyond. 

At GreenUp Wealth, we believe a new economic expansion will follow this transition towards stable lower interest rates.  
 

Author

  • Daniel Greulich, CFA, CFP®

    Chief Investment Officer | Wealth Advisor | Ann Arbor, MI -- Daniel leads our Investment Committee and partners with Aaron Kirsch, Chief Client Advocacy Officer to design and implement client portfolios with your advisor. Daniel brings 14 years of practical experience as a trader, financial advisor, and money manager at both large and mid-sized financial services companies to GreenUp Wealth Management. In addition, he holds a CFP® designation and is also a CFA charterholder. This combination of experience and knowledge helps Dan confidently guide his clients through the development, execution and monitoring of their customized financial plans.

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