The targeted rate is a set-piece for the original rate that international banks charge each other on reserve loans on an overnight basis. Rates on interbanking loans are negotiated by the each bank and usually stay near to the prescribed rate.
The targeted rate can also be referred to as the “nominal rate” or the “federal funds rate”. The federal funds rate is significant because many other rates are connected directly to it or associate closely with it. Bringing a change in the federal funds rate influences the money flow, starting with banks and gradually going down to consumers. [Read more…]