Target Rate

What is a 'Target Rate '

The interest rate charged by one depository institution on an overnight sale of balances at the Federal Reserve to another depository institution, as determined by the Federal Open Market Committee (FOMC) of the Federal Reserve.


The 12 members who comprise the Federal Open Market Committee meet for eight regularly scheduled meetings per year. During these meetings, the FOMC reviews economic and financial conditions and determines the federal funds target rate. A decline in the target rate could stimulate economic growth; however, too much economic activity can cause inflation pressures to build. A rise in the rate limits economic growth and helps control inflation pressures; however, too great an increase can stall economic growth. The FOMC seeks a target rate that will achieve the maximum rate of economic growth.

BREAKING DOWN 'Target Rate '

The FOMC may schedule additional meetings as necessary to implement changes in the target federal funds rate. At any of the FOMC's meetings, the federal funds target rate may increase, decrease or remain unchanged depending on the economic conditions in the United States. A change in the federal funds rate can affect other short-term interest rates, longer-term interest rates, foreign exchange rates, stock prices, the amount of money and credit in the economy, employment and the prices of goods and services.


The Federal Reserve Act of 1913 charged the Federal Reserve with setting monetary policy to influence the availability and cost of money and credit.

RELATED TERMS
  1. Federal Funds Rate

    The interest rate at which a depository institution lends funds ...
  2. Federal Open Market Committee Meeting ...

    The meeting of the Federal Open Market Committee (FOMC) that ...
  3. Federal Funds

    Excess reserves that commercial banks deposit at regional Federal ...
  4. Federal Open Market Committee - ...

    The branch of the Federal Reserve Board that determines the direction ...
  5. Federal Reserve Bank

    The central bank of the United States and the most powerful financial ...
  6. Federal Discount Rate

    The interest rate set by the Federal Reserve that is offered ...
Related Articles
  1. Personal Finance

    How The U.S. Government Formulates Monetary Policy

    Learn about the tools the Fed uses to influence interest rates and general economic conditions.
  2. Stock Analysis

    Are The Markets Ready For an Interest Rate Increase?

    Learn why the bond market may not necessarily see an interest rate increase soon. Read about how the Federal Reserve will slowly raise interest rates.
  3. Forex

    The Fed

    The Fed's role on interest rates and the forex market
  4. Economics

    The Federal Reserve: The FOMC Rate Meeting

    So far we've learned about the structure of the Federal Reserve and its duties, the Federal Open Market Committee (FOMC), the tools of monetary policy and the federal funds rate. Now we're going ...
  5. Economics

    What's the Federal Funds Rate?

    The federal funds rate is the interest rate banks charge each other for overnight loans to meet their reserve requirements.
  6. Economics

    Understanding the Federal Open Market Committee

    The Federal Open Market Committee is the branch of the Federal Reserve Board that determines monetary policy.
  7. Economics

    The Federal Reserve: Conclusion

    The Fed has more power and influence on financial markets than any legislative entity. Its monetary decisions are intensely observed and often lead the way for other countries to take the same ...
  8. Economics

    The Federal Reserve: Monetary Policy

    The term monetary policy refers to the actions that the Federal Reserve undertakes to influence the amount of money and credit in the U.S. economy. Changes to the amount of money and credit affect ...
  9. Forex

    U.S. Dollar

    A closer look at the U.S. dollar
  10. Personal Finance

    The Banking System: Federal Reserve System

    ByStephen D. Simpson, CFA The central bank of the United States is the Federal Reserve System. The Federal Reserve System came into being in 1913, after the passage of the Federal Reserve Act ...
RELATED FAQS
  1. When was the last time the Federal Reserve hiked interest rates?

    Learn about when the U.S. Federal Reserve last increased the federal funds target rate, which was in June 2006 after the ... Read Answer >>
  2. Is the prime rate in the US different from the federal funds rate?

    Learn how the federal funds rate affects fluctuations in the prime rate and how following your bank's prime rate can help ... Read Answer >>
  3. What are the implications of a low Federal Funds Rate?

    Find out what a low federal funds rate means for the economy. Discover the effects of monetary policy and how it can impact ... Read Answer >>
  4. What are the most important interest rates?

    Learn about the most important interest rates in the economy; the Federal funds rate and discount rate are set by the Federal ... Read Answer >>
  5. How does the stock market react to changes in the Federal Funds Rate?

    Learn how the stock market reacts to changes in the federal funds rate. The fed funds rate is the overnight rate at which ... Read Answer >>
  6. How do open market operations affect the money supply of an economy?

    Understand how open market operation affect the supply of money in the economy and learn the specific ways the Federal Reserve ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center