Federal Funds: Instrument of Federal Reserve Policy

Economic Review, Vol. 72, No. 5, September/October 1986, pp. 3-11

9 Pages Posted: 25 Oct 2012

See all articles by Marvin Goodfriend

Marvin Goodfriend

Carnegie Mellon University - David A. Tepper School of Business; National Bureau of Economic Research (NBER)

William Whelpley

affiliation not provided to SSRN

Date Written: 1986

Abstract

Federal funds are the heart of the money market in the sense that they are the core of the overnight market for credit in the United States. Moreover, current and expected future interest rates on Federal funds are the basic rates to which all other money market rates are anchored. Understanding the Federal funds market requires, above all, recognizing that its general character has been shaped by Federal Reserve policy. From the beginning, Federal Reserve regulatory rulings have encouraged the market’s growth. Equally important, the Federal funds rate has been a key monetary policy instrument. This article explains Federal funds as a credit instrument, the funds rate as an instrument of monetary policy, and the funds market itself as an instrument of regulatory policy.

Suggested Citation

Goodfriend, Marvin and Whelpley, William, Federal Funds: Instrument of Federal Reserve Policy (1986). Economic Review, Vol. 72, No. 5, September/October 1986, pp. 3-11. Available at SSRN: https://ssrn.com/abstract=2120585

Marvin Goodfriend (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

William Whelpley

affiliation not provided to SSRN

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