federal funds

plural noun

Definition of federal funds 

: reserve funds lent overnight by one Federal Reserve bank to another

Examples of federal funds in a Sentence

Recent Examples on the Web

Currently, the federal funds rate is 2 to 2.25 percent. Emily Stewart, Vox, "Trump’s beef with the Fed, explained," 29 Nov. 2018 The Centers for Medicare and Medicaid Services finally cut the hospital’s certification and $53 million federal funds earlier this year due to continued failed inspections. Martha Bellisle, The Seattle Times, "Nurse who lost part of ear in patient assault sues state," 8 Nov. 2018 With the June rate hike, the current range for the policy rate, known as the federal funds rate, is 1.75 percent to 2 percent. Martin Crutsinger, courant.com, "Federal Reserve projects further gradual hikes in key rate," 13 July 2018 The short-term federal funds rate remained at zero percent for seven years after the Fed first drove down short-term rates back in December 2008 to revive the economy during the depths of the financial meltdown. Susan Tompor, Detroit Free Press, "How can Fed make investors uncertain? U-M professor says it's obvious," 22 June 2018 The most immediately affected will be credit-card interest rates, which are subject to near-instantaneous revision to track the federal funds rate. Irina Ivanova, CBS News, "Federal Reserve hikes key interest rate another quarter-point," 13 June 2018 The central bank lifted its federal fund rate -- what banks charge each other for overnight loans -- by a quarter percentage point to a range of 1.75% to 2%. Paul Davidson, USA TODAY, "Fed decision: Federal Reserve hikes rates to range of 1.75% to 2%, ups forecast to 4 hikes in '18," 13 June 2018 That would leave the central bank’s federal funds rate target at 2.25 to 2.5 percent. Rich Miller, Bloomberg.com, "Fed Finds Success at Home Spreads Pain Abroad as Markets Tighten," 14 May 2018 One plus about the new contract: The interest rate on the deposits will rise automatically with the federal funds rate. BostonGlobe.com, "T picks Citizens Bank to handle commercial banking," 9 May 2018

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'federal funds.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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First Known Use of federal funds

1924, in the meaning defined above

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Last Updated

6 Dec 2018

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The first known use of federal funds was in 1924

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More Definitions for federal funds

federal funds

plural noun

Financial Definition of federal funds

What It Is

Federal funds are monies held by banks at the Federal Reserve to meet reserve requirements. Funds in excess of reserve requirements can be loaned to other banks in order for those banks to meet reserve requirements.

How It Works

Federal funds loans are unsecured and are for very short periods, typically overnight. They are usually made through brokers who specialize in such transactions, or they are arranged directly between the banks themselves. The interest rate on a federal funds loan is called the federal funds fate.

Why It Matters

Changes in the federal funds fate compel banks to either borrow federal funds to meet reserves requirements or build them up internally. These decisions affect how much money is available for lending to bank customers. The resulting increase or decrease in the supply of money available for lending usually affects overall interest rates, and factors into economic stability -- the ultimate objective of the Fed.

Although the Federal Reserve cannot directly control Federal Funds activity, it can manipulate it. The Fed does this primarily by offering competing loans to banks. Manipulation of the Federal Funds Rate is one of three primary methods the Federal Reserve uses to control the money supply. (The other two involve changing reserve requirements and buying or selling U.S. Treasuries on the open market.)

Source: Investing Answers

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