The federal funds rate is the long-term interest rate banks charge one another for loans.

Question

BlackTom AI · Accepted Answer

The federal funds rate is the short-term (typically overnight) interest rate banks charge one another for loans of reserves held at the Federal Reserve, so the statement is false.

1) Relevant concepts
- Federal funds rate: the rate on unsecured overnight loans between depository institutions to meet reserve requirements.  
- Short-term vs long-term interest rates: short-term rates (overnight to a few months) differ in maturity and function from long-term rates (years, e.g., Treasury yields, mortgage rates).  
- Federal Open Market Committee (FOMC): sets a target (or target range) for the federal funds rate as its primary policy tool to implement monetary policy.

2) Step-by-step reasoning
- The statement claims the federal funds rate is a long-term interest rate banks charge one another.  
- By definition and market practice, federal funds transactions are overnight loans of reserve balances; thus the rate is a short-term (overnight) rate.  
- Therefore the characterization as a long-term rate is incorrect.

3) Calculations
- No numerical calculation is necessary; this is a definitional/qualitative distinction.

4) Why the correct answer is correct
- The federal funds rate governs the cost of overnight reserve borrowing and is the benchmark for short-term interbank liquidity. The FOMC targets this rate to influence short-term money market conditions, which then propagate to other interest rates. Long-term rates reflect expectations about future short-term rates, inflation, and term premia, and are not the same instrument as the federal funds rate.

5) Why the other option is incorrect
- "True" would imply the federal funds rate is long-term; that contradicts its established definition as an overnight interbank rate. Long-term rates (e.g., 10-year Treasury yield) are distinct and not the same as the federal funds rate.

6) Conclusion
- The correct answer is False, which matches the provided answer.

The federal funds rate is the long-term interest rate banks charge one another for loans.单项选择题

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