Interest Rates (+)

Interest rates make the world go round. They are the most effective tool of central banks for controlling growth and stabilizing prices. The core interest rate of any economy is the federal funds rate, which is determined by the local monetary authority (i.e. FOMC and ECB).

What is the interest rate?

An interest rate is the amount of interest paid as a percentage of the amount lent, borrowed, or deposited.

Key Takeaways

• The federal funds rate is the rate at which commercial banks lend to one another and transact with the central bank
• Banks are free to determine their interest rates for loans/deposits by considering the competition and central banks’ policies

  Read more: The History of Interest Rates