jepittman

What's Happening to the Fed Funds?

I have two comparatively simplistic observations concerning this. First a lower market funds rate widens the spread for lending banks (increases the opportunity cost) and second the rather higher target rate keeps borrowing costs otherwise higher since most lending rates are based on the target funds rate (e.g. the prime rate). Seems to me this would work to encourage banks to lend. Maybe this is why the fed tolerates it.