Context:
Federal Open Market Committee meeting was determined to raise the targeted federal funds rate to a range of 5.25% to 5.5%.
About Federal Funds Rate (FFR):
- Purpose – For guiding U.S. monetary policy.
- Interest rate for overnight borrowing between US commercial banks.
- US Federal Reserve (the Fed) indirectly influences the FFR.
- Aim – To control the money supply to target the FFR.
- Effects of Fed increasing interest rates:
- Reduces the money supply in the economy
- Higher interest for overnight loans
Federal Open Market Committee (FOMC):
- Branch of the Federal Reserve System (FRS).
- Responsible for open market operations.
- Consists of 12 members.
- 8 meetings per year.
- Roles –
- Reviews economic and financial conditions.
- Determines the appropriate stance of monetary policy.
- Evaluate risks to price stability & growth goals.
Must read about Open Market Operations
Source: The Hindu
Previous Year Question
Indian Government Bond Yields are influenced by which of the following?
- Actions of the United States Federal Reserve
- Actions of the Reserve Bank of India
- Inflation and short-term interest rates
Select the correct answer using the code given below.
[UPSC Civil Services Exam – 2022 Prelims]
(a) 1 and 2 only
(b) 2 only
(c) 3 only
(d) 1, 2 and 3
