"Fed rate hike," Popular Science: What is the federal funds rate?

US stock market center: Exclusive offer full industry sector stocks, premarket after-hours, ETF, warrants night network real-time quotes, nightlife network Finance YORK September 25 news, the Federal Reserve is expected to start raising interest rates in the middle of next year, continuing the recent dollar rose also means that the market is ready to welcome the arrival of this moment。Goldman Sachs (Goldman Sachs) senior US economist Chris Dawsey us some essential knowledge about the popularity of the Federal Reserve to raise interest rates。The following excerpt from Chris Dawsey main explanation。  The primary question is: What is the federal funds rate?What is its operation mechanism?  The federal funds rate (the federal funds rate) is the interest rate a bank to another bank overnight lending reserves paid。Historically, the reserves mainly used to meet statutory reserve requirements set by the Federal Reserve, as well as inter-bank payment。This is also called the effective interest rate (effective) federal funds rate, the target (target) differ federal funds rate, which the Fed hopes the effective federal funds rate for some time to reach the average level。Currently the Fed's target for the federal funds rate to 0-0.25%。  Can be seen from the above explanation, the federal funds rate decision is the key to the amount of the reserve。  Quantitative easing (pre-QE) previous era, reserve balance of the banking system is very low, the New York Fed can fine-tune the level of reserves through open market operations, ie buying and selling securities on the open market to absorb and release a small reserve gold。  However, after quantitative easing (after QE) era, the situation becomes a bit more complicated。Now the US banking system excess reserves increased to an alarming 2.$ 7 trillion, because of large-scale asset purchases the Fed quantitative easing carried into the bank's reserves (the equivalent of the Federal Reserve printing a large number of e-money)。  As a result, today's scarcity value reserve (scarcity value) is close to zero, so the effective federal funds rate at 0-0 basic.25% of the lower section running。  If you then want the Fed increased the federal funds rate, there are two main ways: First, manufacturing scarcity of reserve balances, and second is to increase the interest rate paid on excess reserves (IOER), or a combination of both。  How to make the scarcity of reserves it?The easiest way is to reverse QE process: to eliminate some of its reserves in the banking system by selling assets (or make it a natural maturity)。In addition there are some of the more short-term operating practices to reduce the reserves, including overnight reverse repurchase (ON RRP), regularly RRP, regular savings and convenient (TDF), fixed interest rates and other tools RRP。These tools have advantages and disadvantages, the Federal Reserve will carefully weigh the use。  The second method is to rely on the interest rate on excess reserves (IOER)。In theory, if the Fed is willing to pay a certain interest rate on excess reserves, the effective federal funds rate should not be below this level。It's like agricultural prices generally not lower than the price the same as the government's purchasing and storage。However, in practice, the federal funds rate below the IOER is normal。  What the Fed's plan is it?The Fed now plans to rely mainly on IOER, especially in the early exit easing。However, the Fed also said that the future of the interval the federal funds rate by a fixed rate of interest RRP as the lower limit, IOER as the upper limit。(Shofu compilation)