Advanced English Dialogue for Business – Federal funds rate

Listen to a Business English Dialogue About Federal funds rate

Skylar: Hi Zoey, have you heard about the federal funds rate?

Zoey: Yes, I have. It’s the interest rate at which banks lend reserves to each other overnight.

Skylar: That’s right. The Federal Reserve sets the federal funds rate as part of its monetary policy to influence borrowing and spending in the economy.

Zoey: Does the federal funds rate affect other interest rates in the economy?

Skylar: Yes, it does. Changes in the federal funds rate can have a ripple effect on other interest rates, such as mortgage rates and credit card rates.

Zoey: I see. So, a higher federal funds rate would generally lead to higher borrowing costs for consumers and businesses?

Skylar: Exactly. Higher borrowing costs can slow down economic activity, while lower borrowing costs can stimulate economic growth.

Zoey: Are there any factors that influence the Federal Reserve’s decision to change the federal funds rate?

Skylar: Yes, there are several factors. The Federal Reserve considers economic indicators like inflation, employment levels, and overall economic growth when deciding whether to adjust the federal funds rate.

Zoey: I understand. So, it’s a balancing act to ensure stable economic growth and price stability?

Skylar: Yes, that’s correct. The Federal Reserve aims to achieve its dual mandate of maximum employment and stable prices through its monetary policy decisions.

Zoey: Thanks for explaining, Skylar.

Skylar: No problem, Zoey. Understanding the federal funds rate is important for anyone interested in the economy and financial markets.