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Quick Question on Fed

Quick Question on Fed

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miksirhc Posted: Mon, Apr 21 2008 6:08 PM

What effect does the federal funds rate have on the market rate of interest?  I know lowering the funds rate lowers the market rate of interest, but why? 

I'm not lazy, I just have a high time preference.
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maxpot46 replied on Tue, Apr 22 2008 12:04 AM

Because if the penalty that banks pay for exceeding their reserve requirement is reduced, they are encouraged to loan more heavily, requiring them to reduce their rate of interest to attract new borrowers.

"He that struggles with us strengthens our nerves, and sharpens our skill. Our antagonist is our helper." Edmund Burke

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