This presentation discusses interest rate policy in the US. It covers three main topics: the federal funds rate, the discount rate, and the zero interest rate policy. The federal funds rate is the interest rate at which banks lend balances held at Federal Reserve to other banks overnight. The discount rate is the interest charged to banks borrowing from the Federal Reserve's discount window. The zero interest rate policy means setting rates near zero to encourage growth when inflation is low and unemployment is high. Regular adjustments are made to short-term rates to manage economic growth and inflation.

1. WELCOME TO OUR PRESENTATION
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GROUP 10

2. TOPIC: INTEREST RATE POLICY IN US

3. CONTENT
I
II
III
The federal funds rate
The discount rate
The zero interest rate policy

4. I. The federal funds rate (FFR)
1. Definition
2. The features of
FFR
3. How FFR works

5. I. The federal funds rate
• The interest rate at which banks and other
depository institutions lend money to each
other, usually on an overnight basis. The law
requires banks to keep a certain percentage of
their customer's money on reserve, where the
banks earn no interest on it. Consequently,
banks try to stay as close to the reserve limit
as possible without going under it, lending
money back and forth to maintain the proper
level.
1.
Defintion

6. I. The federal funds rate
2. The features of FFR
 FFR is determined by market.
 FFR is an important benchmark in financial
markets.
 The higher the FFR,the more expensive it
is to borrow money.

7. I. The federal funds rate
3. How FFR works

8. II. The discount rate
1. Definition
2. The features of
discount rate
4. How discount
rate affects
3. How discount
rate works

9. II. The discount rate
1. Definition
The discount rate is the interest rate charged to
commercial banks and other depository
institutions on loans they receive from their
regional Federal Reserve Bank's lending facility-
-the discount window.

10. 2. The features of discount rate
The primary credit rate is the basic interest rate
charged to most banks. It's higher than the Fed
funds rate.
The secondary credit rate is a higher rate that's
charged to banks that don't meet the requirements
needed to achieve the primary rate.
The seasonal rate is for small community
banks that need a temporary boost in funds
to meet local borrowing needs

11. 2. The features of discount rate
3. How discount rate works
When Central Bank wants to control the high inflation
rate in the economy.
When Central Bank wants to increase growth rate in
the economy.

12. II. The discount rate
4. How discount rate affects
It affects credit card and adjustable-rate mortgage rates.
It affects all other interest rates.
It affects savings account and money market interest
rates.
Fixed rate mortgages and loans are only indirectly
influenced by the discount rate.

13. III. Zero interest rate policy (zirp)
1. Definition
2. Reality of ZIRP
3. Regular interest
rate adjustments

14. III. Zero interest rate policy
• Zero Interest Rate Policy is the lowest
percentage of owed principal that a central
bank can set. In monetary policy, the use of a
zero percent nominal interest rate means that
the bank can no longer reduce the interest
rate to encourage economic growth. As the
interest rate approaches zero, the
effectiveness of monetary policy is reduced as
a macroeconomic tool.
1.
Defintion

15. III. Zero interest rate policy
2. Reality of ZIRP
The Federal Reserve sets short-term interest rates. Since
2009, the Federal Reserve has followed a zero interest
rate policy (ZIRP) by keeping rates at almost exactly zero

16. III. Zero interest rate policy
2. Reality of ZIRP
The chart shows the unemployment and inflation rate of US
from 2007 to 2014

17. III. Zero interest rate policy
the U.S. reached its lowest economic point following the
financial crisis with inflation of -2.1 percent, unemployment
at 10.2 percent and GDP growth plummet to -2.8 percent.
Interest rates dropped to near zero during this period
Quantitative easing, inflation, unemployment and GDP
growth reached 1.8 percent, 6.6 percent and 3.2
percent, respectively.
The federal funds rate would not fall within its
current 0.00%-0.25% target range. unemployment
running at 5.5%, the US labor market booming and
an economy that is growing at around 3%

18. III. Zero interest rate policy
3. Regular interest rate adjustments
Short-term rates are raised to keep the economy from building too
fast and risking inflation when the economy is growing.
Lower short-term rates when the economy is contracting or
slowing.
cut short-term rates which is cutting the rate that banks charge
each other to borrow money.

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