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The federal funds effective rate is the weighted average of rates on trades between brokers. As a simple example, if a borrowing bank A pays 5% to a lending bank B to borrow funds and on the same day a bank C pays 4.5% to a lending bank E to borrow funds, then the effective rate for this day is 4.75%, assuming we use a weight of 0.5 for both trades.
The federal funds decides a target rate (the historical data of the target rate can downloaded here: Federal Funds - target rate), then tries to keep the effective rate between a range of the target rate through open market operations. The open market operations involve buying and selling government securities to increase or reduce the money supply. As an example, to reduce the effective rate to be in a reasonable range of the target rate, the Open Market Committee will buy government securities. The money used to buy these securities will be injected in the market and this will increase the money supply. Increase in the money supply will in turn reduce the interest rate banks charge each other for loans and consequently the effective fed rate.
This item downloads historical data of the daily effective federal funds rate (Symbol: ^Federal_funds_rate) from the Federal Reserve website. The historical data spans from July 1954 to present.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
