Key Rate

DEFINITION of 'Key Rate'

The specific interest rate that determines bank lending rates and the cost of credit for borrowers. The two key interest rates in the United States are the discount rate and the Federal Funds rate.

BREAKING DOWN 'Key Rate'

The key rates are one of the chief tools used by the Federal Reserve system to implement monetary policy. When the Fed wants to expand the money supply, it will typically lower one or both key rates in order to decrease the cost of borrowing. When the Fed is in a contractionary phase, it will raise the rates to increase the cost of borrowing.

RELATED TERMS
  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Federal Reserve Bank

    The central bank of the United States and the most powerful financial ...
  3. Federal Funds Rate

    The interest rate at which a depository institution lends funds ...
  4. Federal Reserve Note

    The most accurate term used to describe the paper currency (dollar ...
  5. Index

    A statistical measure of change in an economy or a securities ...
  6. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
Related Articles
  1. Investing Basics

    APR and APY: Why Your Bank Hopes You Can't Tell The Difference

    Banks use these rates to entice borrowers and investors. Find out what you're really getting.
  2. Economics

    Forces Behind Interest Rates

    Get a deeper understanding of the importance of interest rates and what makes them change.
  3. Investing Basics

    Interest Rates And Your Bond Investments

    By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it.
  4. Investing News

    What's the Fed Going to do in 2016?

    Learn about the factors that contribute to increases in the federal funds rate by the Federal Reserve and key economic indicators for 2016.
  5. Economics

    Forces Behind Interest Rates

    Interest is a cost for one party, and income for another. Regardless of the perspective, interest rates are always changing.
  6. Investing Basics

    Financial Markets: Capital vs. Money Markets

    Financial instruments with high liquidity and short maturities trade in money markets. Long-term assets trade in the capital markets.
  7. Term

    How Time Deposits Work

    A time deposit is an interest-bearing bank deposit that has a specific maturity date.
  8. Bonds & Fixed Income

    3 Risks U.S. Bonds Face in 2016

    Learn about the major risks for the bond market in 2016; interest rate increases, high-yield bond volatility and a flatter yield curve may be issues.
  9. Economics

    The Ripple Effect: Interest Rates and the Stock Market

    Investors should observe the Federal Reserve’s funds rate, which is the cost banks pay to borrow from Federal Reserve banks.
  10. Economics

    3 Things That May Happen at FOMC Meeting

    We are keeping a close eye on what the Fed will say about economic outcomes and participants’ viewpoints at the FOMC meeting this week.
RELATED FAQS
  1. What is the difference between stated annual return and effective annual return?

    Essentially, the effective annual return accounts for intra-year compounding, and the stated annual return does not. The ... Read Full Answer >>
  2. What does a cut in interest rates mean for the stock market?

    When the next Federal Reserve meeting is expected to bring interest rate cuts or increases, it is wise, as a stock investor, ... Read Full Answer >>
  3. What happens if interest rates increase too quickly?

    When interest rates increase too quickly, it can cause a chain reaction that affects the domestic economy as well as the ... Read Full Answer >>
  4. When was the last time the Federal Reserve hiked interest rates?

    The last time the U.S. Federal Reserve increased the federal funds rate was in June 2006, when the rate was increased from ... Read Full Answer >>
  5. Do lower interest rates increase investment spending?

    Lower Interest rates encourage additional investment spending, which gives the economy a boost in times of slow economic ... Read Full Answer >>
  6. Are mutual funds considered cash equivalents?

    Though all mutual funds are considered liquid assets, only certain funds are considered cash equivalents. What Is a Cash ... Read Full Answer >>
Hot Definitions
  1. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  2. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  3. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  4. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
  5. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is ...
Trading Center