– Money banks and credit unions borrow/lend to other banks/credit unions
– Overnight uncollateralized loans
– Federal funds target rate determined by FOMC
– Federal funds effective rate determined by market
– NY Fed operates on open market to make effective rate close to target rate
– Rate drops in recessions to stimulate economy
– Current volume around $50-80 billion daily
Links:
Wikipedia – Federal funds rate
Effective Federal Funds Rate
Federal Funds Data
Effective Federal Funds Volume