In the past 50 years, the federal funds rate has been an important means for the Federal Reserve to implement monetary policy. Other secondary measures include adjusting the deposit reserve ratio of commercial banks, open market operations and adjusting the discount rate. The federal funds rate is the rate at which banks pay overnight loans. It alternately affects the minimum lending rate, which is usually 3 percentage points higher than the federal funds rate. The minimum loan interest rate is the interest rate at which banks provide loans to their best customers.

Low interest rates stimulate economic activities by reducing borrowing costs, making it easier for customers and enterprises to buy and build. High interest rates slow down economic development by increasing borrowing costs. (See monetary policy for details)

The Fed usually adjusts the federal funds rate by 0.25 or 0.50 percentage points at a time. From the beginning of 200 1 to the middle of 2003, the Federal Reserve lowered the interest rate 13 times, from 6.25% to 1.00% to cope with the economic recession. In June 2002, the interest rate dropped to 1.75, many of which were lower than the inflation rate. On June 25th, 2003, the federal funds rate dropped to 65,438+0.00%, the lowest level since 65,438+0.958. The average rate in overnight rate at that time was 0.68%. From the end of June, 2004, the Federal Reserve began to raise the target interest rate to cope with the possible inflation caused by an overactive economy. For example, from June 5438 to February 2004, the interest rate reached 2.25% after a series of small increases.