What Is The Fed Funds Rate?
The Federal Open Market Committee adjourns from its two-day meeting this afternoon and is widely expected to lower the Fed Funds Rate. This does not mean that mortgage rates are being lowered, too.
The definition of Fed Funds Rate from the Federal Reserve:
The federal funds rate is the rate charged by one depository institution on an overnight sale of immediately available funds (balances at the Federal Reserve) to another depository institution; the rate may vary from depository institution to depository institution and from day to day. The target federal funds rate is set by the Federal Open Market Committee (FOMC).
Notice that the words “consumer” and “mortgage” are nowhere to be found. That’s because the Fed has nothing to do with them.
The Fed does not control mortgage rates.
The Federal Reserve’s policy changes impact banks, which then impacts consumers in the form of “looser” or “tighter” credit standards.
In lowering the Fed Funds Rate, the Federal Reserve stimulates the economy. In raising the Fed Funds Rate, it slows the economy. The big risk, therefore, is lowering too much (which promotes inflation) or raising too much (which retards growth). It’s a difficult dance.
The FOMC will release its policy statement at 2:15 P.M. ET.
Source
FRB: FAQs: Monetary Policy
http://www.federalreserve.gov/generalinfo/faq/faqmpo.htm#3
