Key Rate

AAA

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.

INVESTOPEDIA EXPLAINS '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 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 >>
Related Articles
  1. Economics

    Forces Behind Interest Rates

    Get a deeper understanding of the importance of interest rates and what makes them change.
  2. 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.
  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. Economics

    What's The Impact On Equities If The Rates Hike?

    The Fed is on course for raising interest rates. True, that leaves the question of when (most likely June or September, but could be later) and how much.
  5. Investing

    Are You Ready To Invest In The Tech Sector?

    Tech stocks, particularly those of mature tech companies, are well positioned and offer meaningful upside potential in the near-term.
  6. Investing

    The Impact Of A Stronger Dollar In The Markets

    The economy continues to improve, but also demonstrated that some areas of the stock market are more vulnerable to an increase in interest rates.
  7. Bonds & Fixed Income

    Does Quantitative Easing Work?

    The US, Japan, and now the EU have embraced quantitative easing. But what works for the economy of one country doesn't necessarily work for another's.
  8. Trading Strategies

    Consider The Season On Trading Day

    Calendar and clock bias, better known as seasonality, is a frequently misunderstood concept that exerts a huge influence on the ticker tape.
  9. Investing

    Reassessing Your Approach To Bond Investing

    Rethinking your fixed-income portfolio may not resonate in quite the same way as dropping 10 pounds or finally giving up that smoking habit.
  10. Investing Basics

    Five Successful Investing Strategies

    The secret to investing is that there is no secret. Success is all about knowing yourself, getting the basics and using both to make the right choices.

You May Also Like

Hot Definitions
  1. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  2. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  3. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  4. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  5. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  6. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
Trading Center