On Jan. 25, the Federal Reserve System issued a statement indicating that it currently anticipates economic conditions — including low rates of resource utilization and a subdued outlook for inflation over the medium run — are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. The federal funds rate is the interest rate at which depository institutions actively trade balances held at the Federal Reserve, called federal funds, with each other, usually overnight, on an uncollateralized basis.
In effect, a low federal fund rate makes money cheaper to borrow, allowing an influx of credit in the market that should stimulate the economy. In turn, a decrease in these borrowing rates tends to lower rates of return on relatively safe investments such as government and corporate bond issues since demand for these bonds should exist at relatively lower rates.
