Fed funds

The Central Bank’s main interest rate control is the overnight fund rate. The money in local banks which is not loaned out is put into the Central Bank to earn interest overnight. When the rate is high the banks prefer to leave their money there where it is risk free. When rates come down the banks will look favorably on business and consumer loans. When the banks move money from the Fed to private, money is created and the money supply increases. The bank loans me money and I spend it and the money goes into someone else account and they spend and so on which allows banks to create money. If the money supply increases too rapidly then inflation follows because of the old rule that inflation means too much money chasing too few goods. The fund rate has declined over the past year from 5.4% to 4.4% which means more private loans which will be needed as the reshoring continues. The average fed fund rate since 1950 has been 4.6%.