The most visible market signal of the Fed's activity is the
A)Equilibrium interest rate.
B)Federal funds rate.
C)Discount rate.

Question

Quizplus · Accepted Answer

The Federal funds rate is the interest rate at which banks lend and borrow overnight funds from each other. It is a key market signal of the Fed's activity because it is directly influenced by the Fed's monetary policy decisions, particularly the Open Market Operations that involve buying or selling Treasury securities to influence the supply of money in the banking system. Changes in the Federal funds rate ripple through the broader financial system, affecting borrowing and lending rates for consumers and businesses, the value of the U.S. dollar, stock and bond prices, and other important economic indicators. The equilibrium interest rate is a theoretical concept that represents the point at which desired savings and investment are in balance, and it is not a direct signal of the Fed's activity. The Discount rate is the interest rate at which banks can borrow directly from the Fed, but it is typically set above the Federal funds rate as a secondary or emergency tool of monetary policy, and it is not frequently used or widely visible in the market.

The Most Visible Market Signal of the Fed's Activity Is