Redondo Beach, CA. – Jesse Torres’ Fed School (fed-school.jessetorres.com)
The Federal Funds Target Rate is of critical importance to the Federal Reserve because it is through the Federal Funds Target Rate that the Federal Reserve implements its monetary policy. While the Federal Reserve does not directly become involved in Federal Funds (Fed Funds) transactions, it plays a role through the use of repurchase agreements and reverse repurchase agreements purchased and sold by the Trading Desk at the Federal Reserve Bank of New York. The use of repos and reverse repos enables the Federal Reserve to effectively influence the Fed Funds rate. This week’s Fed School tutorial focuses on the financial market's response to announced changes by the Federal Reserve to the Federal Funds Target Rate.
It is generally accepted that a change by the Federal Reserve in the Federal Funds Target Rate is treated as a change in the Federal Reserve's monetary policy. While this comes as no surprise, what is fascinating about the Federal Funds Target Rate is that the financial markets respond not only to actual changes but also to expected or perceived changes - a concept referred to as Open Mouth Operations.
This week’s Fed School (fed-school.jessetorres.com)
Jesse Torres' Fed School (fed-school.jessetorres.com)
