Federal funds rate

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The Federal funds rate is the rate set by the Federal Reserve Board that has a strong correlation (direct most of the time) with the prime rate. It is a lending rate for banks of balances at the Federal Generally lent to other banks. The difference between the federal funds rate and the prime rate is 3 percentage points.

It is the way the Federal Reserve sets monetary policy and attempts to keep inflation down while also attempting to avoid recessions.

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